The BW 50
For many years pharmaceutical companies viewed the development of HIV treatments as a necessary—but unprofitable—public service. There was some logic to that view, given that the majority of HIV victims lived in developing nations and were unable to pay what drugmakers could earn from selling other products.
But Gilead Sciences had a different perspective. The Northern California biotech firm, which chose its name for the medicinal balsam used in Biblical times, sensed an opportunity for any company that could develop drugs that were simpler and cheaper than standard HIV treatments, which required patients to take dozens of different pills throughout the day.
Gilead Chief Executive John Martin, a PhD chemist by training, challenged his researchers to simplify those cumbersome treatments. And they did, combining myriad compounds into a single pill, Atripla, that costs just $1,300 a month and is taken at bedtime. One of the keys: developing a manufacturing process that allowed Gilead to attach the compounds of several drugs yet have them released into the bloodstream at different times. "The first four times we tried to manufacture the drug, we failed," says Martin. "It was a matter of perseverance."
Gilead's move seems prescient: With efforts to develop an HIV vaccine looking more like a distant dream, demand has increased for treatments such as the ones Gilead provides. The payoff: Gilead's profits have tripled since 2004, to $1.6billion—a performance that vaulted the drugmaker to the No. 2 position in this year's BusinessWeek 50, our 12th annual ranking of the best-performing companies in the Standard & Poor's 500-stock index.
Gilead's out-of-the-box thinking is a hallmark of the companies in this year's rankings. And with the economy sitting on the precipice of what could potentially be a deep recession, it's this kind of management vision and moxie that could spell the difference between the companies that not only survive, but thrive, and those that are carried away in the economic undertow. These are companies that, for all of their past successes, are not afraid to alter their business models at the first signs of weakness.
Companies like this year's No. 1 performer, Coach. The handbag maker moved quickly when it understood that its aspirational customers might suddenly hesitate at spending $900 for one of its Legacy handbags. Coach quickly rolled out more affordable lines of bags for as little as $160. Or companies like Starbucks (SBUX) (No. 16), which, in the face of a renewed push by McDonald's (MCD) to boost coffee sales, announced a sweeping remake of its stores that includes free refills and Internet access for regular customers, and more handcrafted coffee drinks. While analysts fret those moves could cut profits in the near term, Starbucks CEO Howard Schultz is willing to absorb that hit to "reignite the emotional connection we have with our customers." Will it work? Starbucks isn't going to wait until things get worse before it tries to find a solution.
The companies that make up the BusinessWeek 50 represent our picks as the top performers in each of the 10 sectors that make up the S&P 500. To select this year's overachievers, we ran the S&P 500 through a proprietary screen that ranks those companies within sectors by two key metrics: return on investment and sales growth over the past three years, and for financial-service firms, their returns on equity and growth in assets. To provide the analysis and perspective that computers can't, BusinessWeek's editors and reporters then reviewed each company on the list, making a limited number of changes and deletions where warranted.
Given our three-year measurement period, the BusinessWeek 50 each year includes a number of companies that are riding the crest of different macroeconomic or business cycles, which means this year's rankings include seven companies that are benefiting from the surge in energy prices, as well as 10 companies, such as Sherwin-Williams (SHW) (No. 40), Bed Bath & Beyond (BBBY) (No. 30), and even Moody's Investor Services (MCO) (No. 44), that gained in different ways from the housing boom. The Class of 2008 is also among the most globalized groups of companies since we published our first rankings in 1997. In addition to the many outfits like Gilead that are dedicated to solving a worldwide problem, roughly two dozen of this year's companies are benefiting from powerful cross-border economic and management trends. That includes companies such as Cognizant Technology Solutions (No. 19), which has emerged as a leader in managing the outsourcing of back-office functions to India and elsewhere, as well as Expeditors International of Washington (No. 32), which has enjoyed a booming business in managing the supply chains for multinationals. "There's a market for suppliers that can take over a company's supply chain and run it better, cheaper, and faster, and these companies have shown how to do it," says Chris Zook, head of the global strategy practice at Bain & Co.
But for every company riding a cyclical boom, there are many others in the BusinessWeek 50 that are positioned to profit in both good times and bad. Indeed, given the speed at which global commerce now moves and market sentiment can turn, today's winners are those companies that can manage risk. That's the case with Goldman Sachs Group (GS) (No. 21), which, at the height of the mortgage boom, shifted course last year and placed well-timed bets that the subprime market was nearing collapse. In the face of soaring raw-material prices, steelmaker Nucor (No. 25) acquired scrap broker SHV North America to ensure its pipeline remains full. "Warren Buffett himself said that it's harder for companies to sustain their growth," says Adrian Slywotzky, a management consultant for Oliver Wyman Group and co-author of the book The Upside: The 7 Strategies for Turning Big Threats into Growth Breakthroughs. "But managing risk well is one way to do it."
What follows are profiles of the BusinessWeek 50 companies, highlighting what makes each of them hum.
Back to the 2008 BusinessWeek 50