Every year, I have to consult my notes for the details on the more arcane aspects of how I calculate the Top 20 Pharma and Top 10 Biopharma companies. Last year, I mentioned that I’d finally developed a criteria for defining (and ranking) a biopharma: a company that makes more than 60% of its drug revenues by selling biologic products, including biotherapeutics, vaccines and other proteins. Royalties would be pared out of the numbers, for the purpose of ranking. This meant that company like ImClone, which derived all of its revenues from royalties, would not count as a biopharma. And it managed to keep Roche out of the Biopharma ranks (until next year!).

The system worked pretty well for this year’s rankings too, although it remains to be seen how it’ll hold if we see a few more biopharmas get snapped up, a la Genentech. Stay independent, Biogen Idec! For me!

This year, it was the Top Pharma ranks that invited a reassessment. Since the inception of this report, I tried to count only innovative human pharmaceutical numbers for the purpose of ranking. That meant cutting out revenues from animal health*, consumer/OTC products, contract manufacturing, devices and diagnostics, vaccines and generics.

At one point, I toyed with the idea of a Top Vaccine Companies report, but as more of the major pharmas and biopharmas have entered the vaccine business, I decided that it would be better to count vaccines within overall pharma revenues (even if most companies with vaccine programs didn’t bother to break out the sales of particular vaccines, beyond the disease class it covered).

During the past year, several of our Top Pharma companies made moves to boost their role in the generics market. For some, the decision appeared to be a precursor to getting into follow-on biologics. For others, the generic market represents a new, albeit lower-margin, revenue stream or new geographic markets to enter. And for Novartis, its Sandoz generic business represented nearly as much in annual sales as this year’s #20 company: $7.5 billion.

The business model for large pharma companies is in flux; how would this report reflect that?

I consulted with our editorial advisory board to see what they thought about including generic revenues within the pharmaceutical revenues that I use to rank the companies. They agreed that “innovator” pharma no longer has a hard and fast definition. For example, Pfizer in 2008 created the Established Products Business Unit, which includes both generic products and near-end-of-patent drugs. If that company was no longer strictly differentiating between patent-protected and generic drugs, did it make sense for this report to do so?

So, having concluded that generic revenues now needed to be counted, I set to work figuring out which generic-focused companies now qualified for inclusion. Several of them are privately held, but the only “mostly generic” company to make it in this year’s Top 20 is Teva, which clocked in at #17. Meanwhile, the inclusion of Novartis’ generics revenues managed to push it from last year’s #6 spot to #4 this year. (It would’ve held the #4 spot last year if I’d included the generics revenues then.)

The next challenge on my horizon? The year when more than one of our Top-Of-The-Top Pharmas winds up making more than 60% of its revenues from biologics and has to get bumped over to the Top 10 Biopharmas list. And Roche/Genentech is a foregone conclusion. . . .

Gil Y. Roth has been the editor of Contract Pharma since its debut in 1999.

P.S.: I’m still planning to keep devices and diagnostics separated from pharma sales. I think it would be disruptive and misleading to count Johnson & Johnson’s and Abbott’s device sales for our purposes. Plus, we have a fine sister publication that covers medical devices, in Medical Product Outsourcing.

* Speaking of animal health, I apologize for last issue’s editorial. It was unprofessional of me bring that much drama into these pages. That said, I do appreciate all the well-wishes and concerned e-mails I received. I’m glad to have readers like you; thanks for putting up with me. (Oh, and Rufus has made a full recovery!)