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What Doctors Don't Tell You

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June 2020 (Vol. 5 Issue 4)

Big Pharma twice as profitable as any other industrial sector
About the author: 
Bryan Hubbard

Big Pharma twice as profitable as any other industrial sector image

The average gross profit margin of a drug company is around 76 percent of revenues compared to just 37 percent of a typical large conglomerate listed on the S&P 500 index.

Researchers at Bentley University compared the revenues and profitability of 35 of the largest drug companies with 357 companies of equivalent size from other industries.

A typical large pharmaceutical was outpacing a company of similar size operating in a different sector across several financial measures; earnings were 13.8 percent against 7.7 percent for other industry sectors, gross profit margins were 76.5 percent compared to 37.4 percent, and earnings before interest and tax were 29.4 percent against a non-pharmaceutical sector average of 19 percent.

Pharmaceutical profits reduced slightly when research and development costs were added back in, but the findings still raise questions about the price drug companies charge for their products, the researchers say.


References

(Source: JAMA, 2020; 323: 834-43)

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