Profitability in the Global Pharmaceutical Industry: A Contested Space

Author(s)

Shaw B1, Mestre-Ferrandiz J2, Klein Wassink E1
1Shawview Consulting, London, London, UK, 2Independent Economics Consultant, Universidad Carlos III de Madrid, Madrid, Spain

OBJECTIVES: The profitability of the international pharmaceutical industry has been a contentious issue for decades in the debates surrounding global health, pharmaceutical policy, pricing and access to medicines. This paper examines current public data on pharmaceutical industry profitability and provides comparison against other industries.

METHODS: We analyzed data published annually between 2004 – 2022 by the European Commission as part of its Industrial R&D Investment Scoreboard. The database has become more internationally oriented over the years. Since 2014, it includes company-level commercial and financial data on the top 2,500 global companies as ranked by R&D spending. The data covers a wide range of metrics for individual companies including industry classification, R&D spend, revenue and profitability – the latter expressed in both absolute terms and as operating profit as a share of total revenue. In this study, we weight each company by revenue and use the relative profitability measure to calculate a weighted industry profitability.

RESULTS: There are four key results: (i) pharmaceutical company profitability varies considerably; (ii) long-term pharmaceutical profitability is falling; (iii) the pharmaceutical industry is not the most profitable in the world and (iv) the pharmaceutical industry maintained R&D investment despite falling profitability.

CONCLUSIONS: There are many reasons why profits earned by pharmaceutical companies will always be under public scrutiny, though defining and measuring these profits is a complex matter. Various metrics have been proposed, including gross profit, net profit and profit as a share of either revenue or R&D spend. Others have argued that financial returns, rather than profit margins, is a better barometer of an industry’s financial health.

In this paper we use a measure of profitability that is both easily understood and used in health circles worldwide, thereby offering a new perspective on measuring pharmaceutical profitability, its evolution since 2004 and how it compares to other sectors.

Conference/Value in Health Info

2023-11, ISPOR Europe 2023, Copenhagen, Denmark

Value in Health, Volume 26, Issue 11, S2 (December 2023)

Code

HPR105

Topic

Health Policy & Regulatory

Topic Subcategory

Pricing Policy & Schemes, Reimbursement & Access Policy

Disease

Drugs, No Additional Disease & Conditions/Specialized Treatment Areas

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