Which Drugs Have The Biggest Pre-Tax Margins?
16 CommentsBy Ed Silverman // January 5th, 2010 // 9:44 am
In an attempt to dissect the profitability of big drugs - and gauge their contribution to a drugmaker’s overall profit and loss - Sanford Bernstein analyst Tim Anderson recently crunched some numbers showing, among other things, that roughly 30 of the 52 drugs he examined have pretax margins that are 70 percent or higher. This compares to the average drug company pretax margin of about 32 percent.
His point: a big drug may only account for 10 percent of a company’s total sales, but its contribution to pretax profits could be twice as large. And as patent cliffs loom, this is important. Here are the drugs offering the biggest payback:
1 - Effexor (Pfizer) 87 percent
2 - Arimidex (AstraZeneca) 85 percent
3 - Femara (Novartis) 84 percent
4 - Detrol (Pfizer) 84 percent
5 - Gemzar (Lilly) 84 percent
6 - Xeloda (Roche) 82 percent
7 - Lipitor (Pfizer) 82 percent
8 - Zometa (Novartis) 81 percent
9 - Plavix (Bristol-Myers/Sanofi-Aventis) 81 percent*
10 - Taxotere (Sanofi-Aventis) 80 percent
* - for the total brand, ignoring profit splits
Source: Sanford Bernstein
Justice in MI
As a non-econ guy, does this list translate into “the most profitable drugs,” or am I missing the point? Thanks.
anonymous
I thought it translated into we priced this 80 times more than what it costs to make it.. BECAUSE WE CAN!!!
Christopher
Well aside from the dodgy arithmetic you do have a point. Pricing in the US is significantly more flexible (higher) than elsewhere and so as the largest pharma market sales here will affect global total sales and profitability.
However, those drugs are all old. Their development costs aren’t included, and marketing expenses are minimal compared to sales, which is why the margin is higher than for newer drugs.
Whether an average margin of 32% is appropriate can be debated. No doubt our pricing experts can comment more knowledgably on this.
doc
The fact that Plavix has a profit margin over 80% and until recently had no competition for 10+ years is insane. Yes, profits are needed for R&D, but for a necessary drug like Plavix, this is highway robbery.
tb
with all due respect doc, consider how much $ is invested in the piepleine drugs, trying to improve yet patients’ lives, yet never make it to market and have not only a zero profit margin, but become a total loss of investment. where is THAT list ?
Perhaps the analysts can balance his info, and offer a list of the most expensive BUSTS, drugs that failed to get approved, and how much the total $$ investment that was lost, all in the noble pursuit of trying to improve patient lives, and also creating a return for shareholders who put their capital at risk.
Those large margins are fantastic actually, as they encourage other compeitors to try to earn some of that, thereby eventually bringing prices down, or the price naturally comes down at patent expiration. The patent expires, and that large margin is gone forever. However, if there was no margin in the beginning, then there would be no innovation either, and the patients would have zero access to a treatment because it wouldn’t exist.
Are the patient’s healthier ? Yes.
When you see a company or product with large margins, you should see it as an invitation to compete (not so easy), or an invitation to invest (pretty easy, call your financial advisor). If it wasn’t for those margins, the innovators would not take the financial risk needed to bring those products to market for the patients.
The dr saves/improves lives by prescribing a drug that saves/improves lives.
jay purcell
for comparison, what’s the profit margin on an iphone? prius? windex?
Pharmapundit
tb is on the money with comments re. profit margins and the need to recover failed drugs in development.
For example, in 2007 Pfizer cut 10,000 jobs following the spectacular failure of its highly-anticipated drug torcetrapib on which it had invested over $1 billion R&D dollars.
Developing life-improving medicines is a high risk high cost business. While government funding plays a key role in certain discoveries, roughly 90% of new medicines are discovered & developed by the private sector. The biopharma industry contributed $88.5 billion to the U.S. Gross Domestic product in 2006, more than triple the average of all other US sectors.
anonymous
For those of us less versed in economics, I do think some clarity on the terminology would be nice.
Cancer drugs are hard to develop because there are so many different kinds of cancer and so many things that can go awry late in development, but I have a hard time with these profits if true.
I work in pharma and have often been a critic. But I do think this industry is unfairly singled out. Thanks Jay Purcell for pointing out the profits on other popular, non-essential products that we HAVE to have. What about Starbucks? What about Tylenol (how long has it been on the market)? What about diapers and baby formula? For-profit companies do have a responsibility to share holders, and a lot of people being critical have also made a lot of money off of pharma companies over the past several decades.
Joan
Dear TB - I’m having trouble stifling my derisive laugh.
“…all in the noble pursuit of trying to improve patient lives…” Wow. You certainly are naive. There is nothing noble about what pharma does. What pharma does is done purely in pursuit of $$$. There may be some bench scientists who work for pharma who have been conned into thinking that what they do is done in an effort to improve patient lives, but let’s get real here and not kid ourselves. The pharmaceutical industry is not a noble business. If the pharmaceutical industry were noble, it would aggressively pursue treatments for rare/orphan diseases. It would spend time on treatments for diseases, rather than on so-called lifestyle drugs. It would come up with new discoveries, rather than focusing on new iterations of the same old same old just to get a new patent on the same drug. It would market pure enantiomer drugs right from the start in order to reduce side effects, rather than waiting until the patent on the racemic drug is about to expire in a profiteering maneuver. It would never have broadly bought-off doctors with speaking arrangements, vacations, etc., in order to influence their prescribing in often inappropriate ways. There is nothing noble about pharma. It is not here for us. It is here for Wall Street. I don’t want Prozac in my cereal, but if pharma could fix things so that cereal could be “enriched” with its drugs, it most certainly would jump at the opportunity to do so. Let’s not kid ourselves about the motivations of the people running and otherwise selling for pharma.
Christopher
Joan clearly isn’t thrilled with what ‘pharma’ does and is or why ‘it’ does it. Fair enough but isn’t it a little too easy and unfair to paint hundreds of thousands - if not millions - of employees around the world with the general ignoble, cynical attitudes described here? I am not an apologist (I did work in the industry once) nor am I naive, but I do find these sweeping statements unhelpful if not insulting.
If one were to categorize an ethnic group, or nationality, with the same indiscriminate zeal, and label that group as (fill in here) it would be widely seen as offensive by some if not most in that category, and properly so.
Generalising about ‘pharma’ doesn’t help. Of course there are frauds, crooks, parasites just as there are in other industries. What seems illogical is to hold ‘pharma’ to higher standards, expect different business ethics, and characterise all its employees as tainted just because its output is health-related.
Ths happens to be aimed at Joan, but my frustration rests in the pervasive attitude that ‘pharma’ is bad. It’s not so, and the people who work in it deserve a better review.
livin longer with meds
Joan and all the other narrow minded individuals must realize that without profits, there would be no incentive for pharma to develop (and yes pay for R&D) for new meds. Look at the US Govt National Institutes of Health. What have they developed? Look at canada. No drug development there.
It is unfortunate but a fact, the US consumer funds drug development for the rest of the world.
The average 65+ patient in america is on 5 to 8 oral medications. The average life expentancy has dramatically increased in the last 20 years. Pharma brings new and more advanced medicines to the market. Anyone else see the correlation here?
bt
I will argue on the life expectancy being significantly increased over the past twenty years. The life expectancy and quality of life measurements for the United States vs. other countries puts the US at a dismal #23. We spend 3x in healthcare what the #1 country spends. So, there is certainly room for improvement.
I am a clinician that happens to have spent my professional career in the pharmaceutical industry. I know plenty of terrific, honorable, and most importantly, patient-centric folks that make their living in the industry as well. Unfortunately, those folks are not RUNNING these companies. And therein, lies the problem. That, combined with our unique need in the USA to report quarterly earnings, regardless of the industry, is what is driving tactics and budgets toward short-term performance and not investing in strategies that will ensure long term sustainability and benefits to the patients. Some industries (e.g. retail) can be held to quarterly earnings -but very few industries with the lengthy development cycles that pharma has can without robbing Peter to pay Paul in the downturn cycles.
marflow
In terms of research cost, including failures(!), balance sheets tell that the percentage of $$ used fro R%D roughly is half of the cost of marketing & sales. Costs of goods are very little indeed and margins high. Pharma still is one of the richest industries on earth.
John
Joan, if you think pharma companies are “obscenely profitable”, I can only assume that you have most of your savings invested in pharmaceutical stocks.
Personally, I ditched all my pharma holdings after enduring 10 years of consistently declining share prices and losing almost half my investment.
ppw
Joan, Do you have your money in a bank and/or do you own a home? Last I noticed…they were pretty darn corrupt industries, so corrupt they helped mastermind much of the fraud and deceit that has helped bring our entire nation down (of course, GOV’T gave them a heaping helpful spoonful of medicine) pun intended.
online pharmacy
I must say this is a great article i enjoyed reading it keep the good work