The profitable face of new drugs

The pharmaceutical industry is the only industry in the world enjoying an enormous increase in revenue of 15-20 per cent, year on year on year, during an economic cycle when the rest of global industry has been enduring flat growth.

Pharmaceuticals make up the most profitable industry sector in the world. In the year 2000, the top 20 drug companies had combined sales of £135 billion, and an average growth rate of 11 per cent. Sales topped £155 billion in 2001, double the revenues achieved in 1997.

The overall profitability of pharmaceuticals was further emphasised in the Fortune 500 list. While the average Fortune 500 company saw profits during 2001 nosedive by 53 per cent, the drug companies on the list saw theirs leap another 33 per cent.

Collectively, the top 10 drug companies in the list topped all three of the magazine’s measures of profitability. They enjoyed the greatest return on revenues, reporting a profit of 18.5 cents for every $1 of sales, which was eight times higher than the combined return of every other sector on the list. Commercial banking achieved a return of just 13.5 cents per $1 made.

The trend is continuing. The total spend on prescription drugs in the USA in 2000, the last year under review by the NIHCM study, was $132 billion. This rose in 2001 to $175 billion, and it is set to reach $200 billion in 2002.