Larger profit margins of pharmaceutical industry driven by marketing, not R&D
Staff -- Manufacturing Business Technology, 8/1/2004 6:00:00 AM
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Americans now spend a staggering $200 billion a year on prescription drugs, and that figure is growing at a rate of about 12 percent a year. ... From 1960 to 1980, prescription drug sales were fairly static as a percent of U.S. gross domestic product, but from 1980 to 2000 they tripled. ... [Pharmaceutical information provider] IMS Health [Plymouth Meeting, Pa.] estimates total worldwide sales for prescription drugs to be about $400 billion in 2002.
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The top 10 drug companies had profits of nearly 25 percent of sales in 1990 ... profits as a percentage of sales remained about the same for the next decade.
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In 2001, the 10 American drug companies in the Fortune 500 list ranked far above all other American industries in average net return, whether as a percentage of sales (18.5 percent); of assets (16.3 percent); or of shareholder equity (33.2 percent). ... In 2002, the median net return for all other industries in the Fortune 500 was only 3.3 percent of sales. ... The combined profits for the 10 drug companies in the Fortune 500 ($35.9 billion) were more than the profits for all the other 490 businesses put together ($33.7 billion).
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For the top 10 pharmaceutical companies, [research & development] amounted to only 11 percent of sales in 1990, rising slightly to 14 percent in 2000.
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In 1990, a staggering 36 percent of sales revenue went into [marketing and administration], and that proportion remained about the same for more than a decade.
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The former chairman and CEO of Bristol-Myers Squibb, Charles A. Heimbold, Jr., made $74,890,918 in 2001, not counting his $76,095,611 worth of unexercised stock options. The chairman of Wyeth made $40,521,011, exclusive of his $40,629,459 in stock options.
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Of the 78 drugs approved by the FDA in 2002, only 17 contained new active ingredients, and only seven of these were classified by the FDA as improvements over older drugs. The other 71 drugs approved that year were variations of old drugs, or deemed no better than drugs already on the market. In other words, they were me-too drugs. Seven of 78 is not much of a yield. Furthermore, of those seven, not one came from a major U.S. drug company.
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