On Mon, Aug 30, 2004 at 06:13:40PM -0700, Gautam Mukunda wrote:
> --- Dan Minette <[EMAIL PROTECTED]> wrote:
> > My numbers indicate that about 20% of the cost of
> > drugs goes into
> > development, cost and production, and that the rest
> > is systematic overhead.
>
> I can't comment on this much (for obvious reasons). I
Not so obvious, actually. There is plenty of publicly available
information. I haven't studied the drug industry, but here is a very
short look at some numbers from the income statements of a few:
2002 2003 2003 2003 TOTAL TOTAL %
PFE MRK ABT LLY OF SALES
====================================================================
Revenue 32373 22486 19681 12582 87122 100.0
COGS 4045 4315 9473 2675 20508 23.5
--------------------------------------------------------------------
Gross Profit 28328 18171 10207 9907 66613 76.5
====================================================================
Operating Expenses
SG&A 10846 6395 5051 4055 26347 30.2
R&D 5176 3280 1834 2350 12640 14.5
Other 630 (1106) 0 0 (476) (0.5)
--------------------------------------------------------------------
Operating 11676 9083 3322 3502 27583 31.7
Income
====================================================================
Other Income and Expenses
Interest Inc 120 419 412 (240) 711 0.8
Taxes 2609 2433 981 701 6724 7.7
--------------------------------------------------------------------
Net Income 9126 6739 2753 2561 21179 24.3
I'm not going to try to explain all of the accounting conventions above
to those who aren't familiar with them (but I will answer specific
questions). But briefly, my way of looking at it is to start with Sales
and look at everything else as a percentage of Sales. I added up the
income statement numbers for Pfizer, Merck, Abbott, and Lilly as shown
above.
Total revenues were $87B. Cost of goods sold accounted for 23.5% of
revenues. Sales, general, and administrative used up 30.2% of revenue,
and research and development used of 14.5% of revenue. Unlike most
companies these days, the drug companies are cash machines with little
debt -- they actually EARNED 0.8% of sales as interest income (most
other companies pay interest on their debt). They paid 7.7% of revenues
as taxes, leaving a net profit margin of 24.3% (quite exceptional, few
companies are so high).
To summarize the major components of where revenue "went":
23.5% COGS
30.2% SG&A
14.5% R&D
7.7% Tax
24.3% Net Income
------------------
100.2% TOTAL (not 100% since I left out a few small numbers)
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