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Pharmaceutical Industry Ranks As Most Profitable Industry — Again

April 18, 2002

Pharmaceutical Industry Ranks As Most Profitable Industry — Again

Drug Companies Top All Three Measures of Profits in New Fortune 500 Report

WASHINGTON, D.C. – Even as many industries suffered last year, the pharmaceutical industry – which continued hiking prices and resisting efforts to control drug prices – once again was the most profitable industry in the annual Fortune 500 list, indicating that the drug industry juggernaut shows no sign of abating, Public Citizen said today.

The pharmaceutical industry topped all three of Fortune magazine’s measures of profitability for 2001. It was a year when average prescription prices increased 10 percent, even though the government inflation rate was a mere 1.6 percent. For three decades, the industry has been at or near the top in all three of these measures.

“During a year in which there was much talk of sacrifice in the national interest, drug companies increased their astounding profits by hiking prescription prices, advertising some medicines more than Nike shoes, and successfully lobbying for lucrative monopoly patent extensions,” said Frank Clemente, director of Public Citizen’s Congress Watch. “Sometimes what’s best for shareholders and CEOs isn’t what’s best for all Americans – particularly senior citizens who lack prescription drug insurance.”

While the overall profits of Fortune 500 companies declined by 53 percent in 2001, the top 10 U.S. drug makers increased profits by 33 percent last year, from $28 billion to $37 billion, according to Public Citizen’s analysis of Fortune 500 data.

Collectively, the 10 drug companies in the Fortune 500 had the greatest return on revenues, reporting a profit of 18.5 cents for every $1 of sales, which was eight times higher than the median for all Fortune 500 industries (2.2 cents). The drug industry also led others by realizing a return on assets of 16.5 percent – almost six times the median (2.5 percent) posted by all industries. Pharmaceutical companies completed the sweep with a return on shareholders’ equity (33.2) percent, which was more than three times the median of all Fortune 500 industries (9.8 percent).

Other Public Citizen findings include:

  • The two most profitable drug companies – Pfizer and Merck – owned the most blockbuster drugs, with four each. Pfizer led U.S. pharmaceutical companies with $7.8 billion in profits in 2001, which is more than the profits of all the Fortune 500 companies in the homebuilding, apparel, railroad and publishing industries combined. Merck was the second most profitable pharmaceutical, netting $7.3 billion, which is more than the profits of all the Fortune 500 companies in the semiconductor, pipeline, food production, mining and crude oil production, and hotel, casino and resort industries combined.
  • The drug industry maintains that it needs extraordinary profits to fuel risky R&D into new medicines. But companies plow far more into profits than into R&D. Fortune 500 drug companies channeled 18.5 percent of revenue into profits last year. Yet they spent just 12.5 percent of revenues on R&D.
  • The drug industry’s dominance of Fortune 500 profitability measures has been growing in recent decades. In the 1970s and 1980s, profitability of Fortune 500 medicine merchants (measured by return on revenues) was two times greater than the median for all industries in the Fortune 500. In the 1990s, the drug industry’s profitability rose to almost four times greater than the median for all industries in the Fortune 500. Last year, it jumped to more than eight times the median for all industries in the Fortune 500.

Other Public Citizen findings unrelated to the Fortune list include:

  • Last year, 29 drugs attained “blockbuster” status (more than $1 billion in sales) – nearly double the 1999 tally of 15 blockbusters. These 29 drugs garnered more than $52 billion in retail sales last year – or 34 percent of the total U.S. pharmaceutical market. That is a dramatic increase over 1999, when blockbusters accounted for 21 percent of the entire U.S. pharmaceutical market.
  • These 29 drugs were far more expensive than most drugs. They had an average prescription price of $97.71 last year – almost double the national average of $49.84 per prescription.

Click here to view a copy of Public Citizen’s report.