Pharmaceutical Industry Ranks as ‘Most Profitable’ in ‘Fortune 500′
The pharmaceutical industry has proved "largely immune to the economic gyrations" that shook several other industries this year, making the industry "more profitable than any other," according to the new "Fortune 500" rankings. Fortune reports that the introduction of new pharmaceuticals and increased sales of patented "blockbuster" drugs helped create "a steady stream of revenues" for drug makers. The drug industry was the most profitable sector in 2000, posting an 18.6% return on revenues and a 17.7% return on assets. The pharmaceutical industry was ranked second in return on shareholders' equity, with a 29.4% profit rate. Merck & Co. and Bristol-Myers Squibb both ranked among the magazine's 20 most profitable companies. Merck took 11th place with $6.8 billion in profits and Bristol-Myers Squibb finished 19th with profits of $4.7 billion. Pfizer, which saw its revenues rise 82.5% last year, ranked fourth in overall market value with $243.2 billion. Amgen, Eli Lilly, Schering-Plough and Bristol-Myers Squibb all ranked among the top 20 companies producing the largest return on revenues. Within the drug industry, Merck posted the largest total revenue with $40.3 billion, followed by Pfizer with $29.5 billion, Johnson & Johnson with $29.1 billion, Bristol-Myers Squibb with $21.3 billion and Pharmacia with $18.1 billion.
Insurance Also Lucrative
While the health insurance industry did not rank near the top of many categories, it did rank second in total return to shareholders, posting returns of 89.2% in 2000. The list of 20 companies with the largest total shareholder returns included Oxford Health Plans (5), HealthNet (8) and UnitedHealth Group (12). Aetna ranked 63rd among the 500 largest companies, followed by UnitedHealth Group at 91. Within the industry, Aetna netted the largest total revenue with $26.8 billion, followed by UnitedHealth Group with $21.1 billion, Cigna with $19.9 billion, HCA with $16.6 billion and PacifiCare Health Systems with $11.4 billion.
The declining number of pharmaceutical warehouses and the "ongoing demand for drugs" combined to enable drug and health care wholesalers to "wr[i]ng revenues from each dollar of assets," with the industry yielding the largest total return to shareholders in 2000, Fortune reports. Health care wholesalers ranked 5th among the "fastest-growing" industries in terms of profit growth over both a one-year and five-year time period. The industry also ranked number one for revenues per dollar of assets in 2000, and finished second for revenues per dollar of equity (or value of company stock). Cardinal Health ranked second among the 20 firms with the largest revenue growth over 10 years, while HealthSouth ranked 18th in profit growth in 2000. In terms of the 20 companies with the greatest revenues per dollar of assets, per dollar of equity and per dollar per employee, AmeriSource Health finished 11th, 9th and 17th, respectively, and ranked second in total return to shareholders. Within the industry, McKesson HBOC posted the largest total revenue with $37.1 billion, followed by Cardinal Health with $29.8 billion, Bergen Brunswig with $19.5 billion and AmeriSource Health with $11.6 billion (Fortune, 4/16).
Public Citizen Decries Drug Industry 'Greed'
The pharmaceutical industry places its "top priority" on profits and advertising, not research and development, according to a Public Citizen report responding to the Fortune 500. Through an analysis of the Fortune 500 statistics and additional company documents, Public Citizen found that the drug companies ranked in the magazine "plowed" 30% of their revenues into marketing and administration, but allocated only 12% toward research and development (Public Citizen release, 4/12). On average, the firms allocated 17% of revenue into profits last year, with eight of the 10 drug firms ranked most profitable devoting more of their revenue to profits than to research and development. In a company-by-company spending analysis, Public Citizen found that Merck & Co. garnered nearly $7 billion in profits last year, but spent only a little over $2 billion on research and development. In addition, Johnson & Johnson earned nearly $5 billion in profits and spent a little under $3 billion in research and development, and Bristol-Myers Squibb posted profits of nearly $5 billion but allocated only about $2 billion toward research and development. Pfizer spent over $4 billion on research and development and reported profits of between $3 billion and $4 billion. Other factors that Public Citizen identified as contributing to profitability include "aggressive advertising," a "variety of tax credits" for drug firms and the Pediatric Exclusivity Provision, which grants pharmaceutical firms a six-month patent extension on drugs in exchange for testing medicines on children (Public Citizen report, 4/12). Frank Clemente, director of Public Citizen's Congress Watch, concluded, "Given the druggernaut's extraordinary profits, it's laughable that the industry -- and the congressional leadership in Washington, D.C. -- have fiercely opposed prescription drug coverage under the Medicare program for fear it would lead to price discounts" (Public Citizen release, 4/12). To view the Public Citizen report, go to http://www.citizen.org/congress/drugs/factshts/mostprofitable.htm.