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How do the profits of large pharmaceutical companies compare with those of other companies from the S&P 500 Index?
In this cross-sectional study that compared the profits of 35 large pharmaceutical companies with those of 357 large, nonpharmaceutical companies from 2000 to 2018, the median net income (earnings) expressed as a fraction of revenue was significantly greater for pharmaceutical companies compared with nonpharmaceutical companies (13.8% vs 7.7%).
Large pharmaceutical companies were more profitable than other large companies, although the difference was smaller when controlling for differences in company size, research and development expense, and time trends.
Understanding the profitability of pharmaceutical companies is essential to formulating evidence-based policies to reduce drug costs while maintaining the industry’s ability to innovate and provide essential medicines.
To compare the profitability of large pharmaceutical companies with other large companies.
Design, Setting, and Participants
This cross-sectional study compared the annual profits of 35 large pharmaceutical companies with 357 companies in the S&P 500 Index from 2000 to 2018 using information from annual financial reports. A statistically significant differential profit margin favoring pharmaceutical companies was evidence of greater profitability.
Large pharmaceutical vs nonpharmaceutical companies.
Main Outcomes and Measures
The main outcomes were revenue and 3 measures of annual profit: gross profit (revenue minus the cost of goods sold); earnings before interest, taxes, depreciation, and amortization (EBITDA; pretax profit from core business activities); and net income, also referred to as earnings (difference between all revenues and expenses). Profit measures are described as cumulative for all companies from 2000 to 2018 or annual profit as a fraction of revenue (margin).
From 2000 to 2018, 35 large pharmaceutical companies reported cumulative revenue of $11.5 trillion, gross profit of $8.6 trillion, EBITDA of $3.7 trillion, and net income of $1.9 trillion, while 357 S&P 500 companies reported cumulative revenue of $130.5 trillion, gross profit of $42.1 trillion, EBITDA of $22.8 trillion, and net income of $9.4 trillion. In bivariable regression models, the median annual profit margins of pharmaceutical companies were significantly greater than those of S&P 500 companies (gross profit margin: 76.5% vs 37.4%; difference, 39.1% [95% CI, 32.5%-45.7%]; P < .001; EBITDA margin: 29.4% vs 19%; difference, 10.4% [95% CI, 7.1%-13.7%]; P < .001; net income margin: 13.8% vs 7.7%; difference, 6.1% [95% CI, 2.5%-9.7%]; P < .001). The differences were smaller in regression models controlling for company size and year and when considering only companies reporting research and development expense (gross profit margin: difference, 30.5% [95% CI, 20.9%-40.1%]; P < .001; EBITDA margin: difference, 9.2% [95% CI, 5.2%-13.2%]; P < .001; net income margin: difference, 3.6% [95% CI, 0.011%-7.2%]; P = .05).
Conclusions and Relevance
From 2000 to 2018, the profitability of large pharmaceutical companies was significantly greater than other large, public companies, but the difference was less pronounced when considering company size, year, or research and development expense. Data on the profitability of large pharmaceutical companies may be relevant to formulating evidence-based policies to make medicines more affordable.
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CME Disclosure Statement: Unless noted, all individuals in control of content reported no relevant financial relationships. If applicable, all relevant financial relationships have been mitigated.
Corresponding Author: Fred D. Ledley, Center for Integration of Science and Industry, Bentley University, Jennison Hall 144, 175 Forest St, Waltham, MA 02452 (email@example.com).
Accepted for Publication: January 14, 2020.
Author Contributions: Dr Ledley had full access to all of the data in the study and takes responsibility for the integrity of the data and the accuracy of the data analysis.
Concept and design: Ledley, McCoy.
Acquisition, analysis, or interpretation of data: All authors.
Drafting of the manuscript: Ledley, McCoy.
Critical revision of the manuscript for important intellectual content: All authors.
Statistical analysis: All authors.
Obtained funding: Ledley.
Administrative, technical, or material support: Ledley, McCoy.
Conflict of Interest Disclosures: None reported.
Funding/Support: This work was supported by the National Biomedical Research Foundation.
Role of the Funder/Sponsor: The National Biomedical Research Foundation had no role in the design and conduct of the study; collection, management, analysis, and interpretation of the data; preparation, review, or approval of the manuscript; or decision to submit the manuscript for publication. The funder did not have the right to veto publication or to control the decision regarding to which journal the manuscript was submitted.
Disclaimer: The Center for Integration of Science and Industry at Bentley University does not receive corporate support.
Additional Contributions: The authors thank Steve Wasserman, MBA (Bentley University); Michael Boss, PhD (executive in residence, Bentley University); and Nancy Hsiung, PhD (executive in residence, Bentley University), for advice and critical reading of the manuscript. Mr Wasserman is faculty at Bentley University. Drs Boss and Hsiung received no compensation for their work at Bentley University or their role in this study. The authors also thank Bentley University undergraduate researchers Liam Fitzgerald, Jeremy Holden, and John Reddington for assistance in data collection and Danielle Solar, BA, for assistance in preparation of the manuscript.
Data Sharing Statement: All data used in this study are publicly available.
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