Top 10 Most Valuable Pharma Companies Globally Revealed: How Far Is China From Breaking Into the Top Tier?

The capital market serves as a barometer for the development of the real economy and is a crucial supporting force in driving and revitalizing its growth. What major developments occurred among global pharmaceutical giants over the past year? What drove the fluctuations in their market capitalizations? When are Chinese pharmaceutical companies expected to break into the top ten?

On November 18, the biotechnology website GEN released the “2019 Global Top 10 Pharmaceutical Companies” list, which was based on the market capitalization of pharmaceutical companies as of November 13, 2019. Each year, GEN compiles this list according to the market capitalization of pharmaceutical companies.

Image source: Sina Medicine, unit: billion USD

Compared to the same period last year, there were no new entrants among the top 10 companies, but the ranking order has changed significantly. Johnson & Johnson remains firmly in first place with a market capitalization of $345.907 billion, although its market value has decreased by 10.7% compared to the same period last year. Pfizer experienced the largest decline at 18.9%, causing it to drop from second place last year to fifth place.

Five companies also saw their market capitalizations rise, with AstraZeneca posting the largest gain (21.3%), followed by Merck & Co. (+11.4%), GlaxoSmithKline (+9.0%), Sanofi (+1.1%), and Novartis (+0.3%). As a result, both AstraZeneca and Merck & Co. moved up two spots in the rankings.

The most intuitive reflection of market capitalization is the rise and fall of stock prices, which directly reflects market expectations. According to U.S. stock data from Tonghuashun, as of the press date, Merck Sharp & Dohme (MSD) recorded the largest cumulative stock price increase in 2019 at 60.84%, followed by AstraZeneca (49.34%), Novartis (24.93%), GSK (22.89%), and Sanofi (13.17%), while Bristol-Myers Squibb declined by 2.6%.

The capital market serves as a barometer for the development of the real economy and is a crucial supporting force in driving and revitalizing its growth. In horizontal comparison, the total market capitalization of the top 10 pharmaceutical companies in 2019 amounted to USD 1.792 trillion, representing a slight decline of 2.9% compared to 2018.

According to the latest Wind “Top 500 Chinese Listed Companies by Market Capitalization” ranking, as of the end of September 2019, the total market capitalization of the top 10 pharmaceutical companies was RMB 1.4193 trillion (USD 198.7 billion at today’s exchange rate). This figure is close to that of Pfizer, which ranks fifth globally. However, there is still a significant gap when compared to the combined market capitalization of the global top 10 pharmaceutical companies.

Hengrui Medicine, the pharmaceutical company with the highest market capitalization among A-share listed companies, closed today with a market cap of RMB 420.2 billion (USD 58.828 billion at today’s exchange rate), approaching the USD 72.365 billion threshold for the top 12. As early as 2018, GlobalData released its latest ranking of the top 25 global pharmaceutical companies by market capitalization; by the end of Q2, Hengrui Medicine had entered the top 25 for the first time, ranking 24th with a market cap of USD 39.7 billion. Over the past year, Hengrui’s market capitalization has further increased, improving its global ranking.

What Has Happened to These Global Pharmaceutical Giants Over the Past Year? What Drove the Rise and Fall in Their Market Capitalizations?

The Rise: Favored AZ and MSD, Less-Favored BMS

The data released by GEN largely reflects investor expectations. According to incomplete statistics compiled by E-Drug Manager, Merck & Co. (MSD) and AstraZeneca are undoubtedly the most favored investors’ darlings this year, whether judged by price-to-sales ratio, price-to-earnings ratio, growth in market capitalization rankings, or stock price fluctuations.

U.S. stock market data show that, as of the first three quarters of 2019, the price-to-earnings (P/E) ratios for Merck & Co. (MSD) and AstraZeneca were 17 and 25, respectively, with both companies having a price-to-sales (P/S) ratio of 4.7. In contrast, Bristol Myers Squibb (BMS), another company experiencing market capitalization growth, had a P/E ratio of only 12 and a P/S ratio of just 3.3. Even Novartis, which had the highest market capitalization among these growing players, posted a P/E ratio of only 17 and a P/S ratio of 4.2.

The value patterns brought by data are often a reflection of business operations.

Over the past five years, AstraZeneca has undergone two challenging periods. According to statistics from Southwest Securities, only two new drugs—osimertinib and glycopyrronium bromide—were approved for AstraZeneca (AZ) between 2015 and 2016, with the latter contributing negligibly to sales. During that time, its market capitalization remained stagnant, and it did not appear in the top ten list of global pharmaceutical companies by GEN. The year 2017 marked a turning point for AZ, with the approval of two oncology drugs and one respiratory medication, sparking an upward trajectory in its stock price. Upon closer examination, the core driver behind this resurgence was its robust R&D pipeline. As of Q3 2019, AZ’s R&D intensity stood at 22.4%, the highest among its rising peers. Additionally, two products were approved in Japan, two anti-tumor agents gained approval in Europe, and two anticancer drugs were in Phase III clinical trials in the United States. In the U.S. market, three other products were at various stages: one approved, one with a Biologics License Application (BLA) under review, and one in Phase II trials. Meanwhile, in China, three products were respectively in Phase III trials, promoted to first-line therapy status, and already approved, two of which were anticancer drugs.

From an investor’s perspective, Merck & Co., Inc. (MSD), also a standout player, exhibits similar characteristics, with a more robust R&D pipeline and greater certainty in sustainable profit growth. According to official disclosures, MSD covers the broadest range of therapeutic areas, primarily focusing on oncology and vaccines, and spanning ten segments including, but not limited to, diabetes care, acute care, and cardiovascular diseases. Its flagship products, such as Keytruda (K-drug) and the HPV vaccine, are among the most prominent in their respective fields. Statistics show that Keytruda has received approval for six indications in the United States, four in Europe, and one each in China and Canada. In addition to Keytruda, there are two drugs in Phase III clinical trials or under New Drug Application (NDA) review in the United States, and one in Phase III clinical trials in Europe.

Although BMS’s market capitalization rose by 11.2%, ranking second only to AstraZeneca and Merck & Co., it did not receive the same favorable market performance as the top two. Year-to-date, its stock price declined rather than increased, with a cumulative drop of 2.6%. In fact, based on performance over the past three years, BMS’s revenue growth rate ranged from 7% to 10%, while net profit stability was relatively poor, fluctuating between a high of 31% and a low of 6%. In terms of R&D, data as of Q3 2019 showed that BMS’s R&D expense ratio was 22.3%, with absolute spending exceeding that of AstraZeneca. However, its R&D pipeline is heavily reliant on Opdivo (O drug), which has fewer approved indications. In the first three quarters, global sales of Opdivo reached $5.441 billion, representing a 10% growth rate, whereas Keytruda (K drug) recorded sales of $7.993 billion, with a 59% growth rate. Additionally, BMS’s primary market is the United States; according to official disclosures, 58% of its revenue comes from the U.S., and 24% from Europe. Previously, during national medical insurance negotiations, discussions around PD-1 inhibitors often focused exclusively on Keytruda, omitting Opdivo, which to some extent reflects differences in brand recognition. Factors such as company size, geographic presence, and brand awareness are key considerations for investors.

The Decline: Johnson & Johnson and Bayer Mired in the “Carcinogenicity Scandal”

Happy families are all alike; every unhappy family is unhappy in its own way. Factors such as intensified competition triggered by the patent cliff, drug safety concerns, bottlenecks in R&D output, M&A activities failing to meet expectations, and sluggish sales growth can all impact a company’s stock price.

The recent controversies surrounding allegations that baby powder causes cancer have been the primary driver behind Johnson & Johnson’s market capitalization decline. On December 14, 2018, a Reuters report alleging that Johnson & Johnson had “deliberately concealed for decades that its baby powder contained asbestos, a carcinogen,” further battered the company’s stock price. Johnson & Johnson’s shares fell 10.04% that day, marking the largest single-day drop since July 19, 2002, and wiping out $39.8 billion in market value. On October 18, 2019, Johnson & Johnson announced a recall of its baby powder products on the market, causing its stock price to fall another 5% that day.

According to GEN, market observers attributed the decline in Pfizer’s market capitalization to a drop in its sales during the second and third quarters of this year. In the first half of 2019, Pfizer’s global sales revenue remained nearly flat compared to the same period last year. While its biopharmaceutical business saw a slight increase, both its established products division and consumer healthcare segment experienced significant declines, impacted by generic competition for Lyrica in the U.S. market. However, in the third quarter of 2019, Pfizer reported revenue of $12.7 billion, exceeding market expectations, which led to a substantial surge in its stock price following the earnings announcement.

“Global Big Pharma” Pfizer is striving to enhance shareholder value through acquisitions; for instance, on July 30, Pfizer completed the $11.4 billion acquisition of Array BioPharma to strengthen the long-term development of its innovative biopharmaceutical business.

Over the past three years, Bayer, ranked 12th, experienced the largest decline in market capitalization, with its $72.365 billion market cap representing a 17.4% decrease from $87.64 billion in 2016, thereby causing it to fall out of the top ten for two consecutive years.

Monsanto, acquired at great cost, has become Bayer’s “nightmare” for several consecutive years. With patents on multiple blockbuster drugs nearing expiration, Bayer turned to the crop science sector in search of new growth drivers, acquiring the U.S. agricultural giant Monsanto for $63 billion. However, Monsanto has faced a series of cancer-related lawsuits over its glyphosate-based herbicide. In its third-quarter report released this year, Bayer acknowledged that the number of U.S. plaintiffs alleging that glyphosate herbicides caused their cancer had doubled over the previous three months, reaching 42,700, and that juries had ruled in favor of the plaintiffs in three cases. More than six months after the Monsanto acquisition, Bayer’s share price had fallen by 40%, with each sharp decline coinciding with escalating controversies over the carcinogenicity of glyphosate herbicides. Bayer not only faces substantial compensation costs but also must strive to convince investors that the acquisition was not a bad deal.

Eli Lilly faces pressure from the expiration of patents on its blockbuster products. Cialis, a well-known men’s health drug, saw its sales drop by 63% year-over-year in the first half of 2019 due to the impact of generic competition. The blockbuster diabetes drug dulaglutide maintained a high growth rate, surpassing the $1 billion mark in Q3 2019, but still fell short of expectations. Moreover, since its approval in 2014, its quarter-on-quarter growth rate has been declining. Analysts believe that dulaglutide’s growth will slow down in the future due to competition from semaglutide.

Eli Lilly is focusing more on new drugs. The growth in Q3 2019 was driven by multiple new drugs. Currently, it has a total of 18 projects in Phase III clinical trials globally, including six new molecular entities. Its R&D pipeline is primarily concentrated in the fields of immunology and diabetes.

Original Title:Top 10 Most Valuable Pharmaceutical Companies Worldwide Announced! Johnson & Johnson Remains Firmly in First Place Despite Sharp Decline, AstraZeneca Surges Over 20%; How Far Are Chinese Pharmaceutical Companies from Making the List?