Drugmakers could still profit with a $1T loss

Drugmakers are the most profitable industry in the world and would be able to remain profitable after experiencing a $1 trillion loss, according to a report from West Health Policy Center and Johns Hopkins Bloomberg School of Public Health.

Even if brand-name drug manufacturers saw $1 trillion in lower sales, they would still be the most profitable industry sector. And drugmakers could maintain their current research investments, the report found. The findings refute the justifications by drugmakers to continually raise drug prices in order to fund research and development of new products and treatments.

The findings come at a time when drug prices have become a major issue in the 2020 election. The Trump administration has made efforts to combat rising drug prices in Medicare, but the majority of drugs still had higher prices in 2019.

“The pharmaceutical industry has tried to instill fear in the American public that federal legislative proposals to reduce drug spending would threaten access to innovative life-saving drugs,” Timothy A. Lash, president of the West Health Policy Center, said in a statement. “Large drugmakers are so profitable they could maintain their current investment in R&D––and their standing as the most profitable industry­­––even if they lose significant revenue."

Government offices, including the Government Accountability Office and the Congressional Budget Office, have similarly found the drug manufacturer sector to be the most profitable, with the highest profit margins and returns of any industry.

West Health and Johns Hopkins analyzed 23 drug manufacturers that were members of the trade association PhRMA, were publicly traded, dealt mostly with brand-name drugs and did not focus solely on orphan drugs.

From 2011 to 2019, the companies had a combined return on investment capital (ROIC) of 17.3%, researchers found. By comparison, the next profitable sector, accommodation and food services and professional, scientific and technical services, each had ROIC of 15.3%. Across all industries except large drug companies, ROIC was 11.5% over that time period.

The large drug manufacturers could stand to lost $758 billion in sales revenue “and still be more profitable than any other industry,” the report found. When all brand-name drug companies were included, the industry could take $1.05 trillion loss in sales revenue and still be the most profitable industry. That means that legislation aimed at lowering drug prices or slowing drug price increases likely wouldn’t harm the industry.

“Given these findings, it’s likely large drug manufacturers could weather the reductions in drug spending scored under recent legislative proposals,” Sean Dickson, director of health policy at West Health Policy Center and lead author for the analysis, said in a statement. “Even with lower revenues, these companies would still be very attractive investment options compared to other industries.”

See the full report here.