Profitability of Large Pharmaceutical Companies Compared with Other Large Public Companies

Abstract

Importance: 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. Objective: 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. Exposures: 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). Results: 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