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Drug Companies are the Most Profitable Industry

In a year that saw a drop in employment rates, a plunge in the stock market and symbols of America's economy literally come crashing down, the pharmaceutical industry continued its reign as the most profitable industry in the annual Fortune 500 list.

While the overall profits of Fortune 500 companies declined by 53 percent - the second deepest dive in profits the Fortune 500 has taken in its 47 years 1 - the top 10 U.S. drug makers increased profits by 33 percent.

Collectively, the 10 drug companies in the Fortune 500 topped all three of the magazine's measures of profitability in 2001, according to Fortune magazine's annual analysis of America's largest companies.

These companies 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 media for all Fortune 500 industries and easily more than the next most profitable industry, commercial banking (13.5 percent return on revenue).

The drug industry also dominated 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) that was more than three times the median of all Fortune 500 industries (9.8 percent).

Fortune 500 drug companies attained this triple crown, in part, by hiking pill prices, advertising some medicines more than Nike shoes and spending much less than the industry has suggested on R&D.8

In addition, through its huge lobbying presence in Washington, D.C. the drug industry staved off congressional efforts to moderate rising drug prices. In fact, the industry went on the offensive last year in Congress, fighting for lucrative extensions of monopoly patents on drugs like Cipro, the antibiotic used to treat anthrax.

Congress was all too willing to help, as it approved a patent extension program for pediatric drugs that will give drug companies $592 million a year in added profits, according to the US Food and Drug Administration (FDA). The FDA acknowledges that this is a conservative estimate based on a limited sample of drugs. Public Citizen has identified 15 drugs that alone could net an additional $2 billion in profits from the six-month patent extensions.

Public Citizen April 18, 2002