Monitoring the Pill Pushers
Corporate Research E-Letter No. 7, December 2000
Monitoring the Pills Pushers:
An Overview of the Global Pharmaceutical Industry
by Philip Mattera
With this issue the Corporate Research E-Letter begins a series of profiles of major industries that are frequently the target of campaigns by community organizations. We begin with the pharmaceutical industry.
The so-called ethical drug business is both huge--some $337 billion worldwide, with about 39 percent of that in the United States--and hugely controversial. The industry likes to present itself as almost a philanthropy--a set of companies that are dedicated to improving the quality of life for people around the world. They may cure disease, but they do so in a way that is not without a large dose of self-interest. Drug prices are sky high and are increasing much faster than the rate of inflation. According to a recent report, prescription drugs accounted for 44 percent of the increase in U.S. healthcare costs last year. The big pharmaceutical companies enjoy profit rates that most other industries can only dream of.
The industry claims that high prices and fat profits are necessary to pay for research & development, yet drugmakers spend a lot more on marketing and administration than on the creation of new drugs. Among the 15 largest drug companies worldwide, R&D spending as a share of 1999 revenues ranged from 6.3 percent to 17.8 percent, with a median of 12.9 percent. This was dwarfed by spending on marketing and administration, which ranged from 15.9 percent to 39.2 percent of revenues, with a median of 35.3 percent. A significant part of latter category of spending goes to create the TV drug ads that saturate the airwaves in the United States.
High drug prices amount to a death sentence for victims of life-threatening diseases who live in poor countries. The industry came under fire for using the Clinton Administration to thwart efforts by poor countries to obtain pharmaceuticals at lower prices through a process called parallel importing. In response to intense public pressure, Pfizer agreed to donate a quantity of expensive AIDS medication to South Africa, but it took months to work out the details with government officials, who were unhappy with the terms of the gift. An eye-opening series of articles currently running in the Washington Post suggests that the big drug companies may actually be taking more than they give when it comes to poor countries. The articles are documenting the ways in which the companies lure people in these countries--including victims of epidemics--into becoming human subjects in tests of experimental drugs.
The big drug companies are a lot more considerate when it comes to rewarding their Top executives for keeping profits high. Counting salary, bonuses, incentive pay and profits from stock options, it is not uncommon for the heads of the large drug houses to rake in eight-figure incomes.
Among the leading U.S. companies, the following are the Top CEO compensation totals for 1999:
- $44.0 million -- Charles A. Heimbold Jr. of Bristol-Myers Squibb
- $37.1 million -- Richard Jay Kogan of Schering-Plough
- $35.8 million -- William C. Steere Jr. of Pfizer
- $33.8 million -- Ralph S. Larsen of Johnson & Johnson
- $33.6 million -- Sidney Taurel of Eli Lilly
To provide a better sense of who's who among the global drug giants, we have prepared an overview of the industry. The following is the ranking of the Top ten drug companies worldwide compiled by the market research company IMS Health, based on pharmacy purchases in thirteen major countries in October 2000. In parentheses are each company's pharmaceutical sales in 1999.
1. Pfizer ($12.05 billion)
2. Merck & Co. ($14.03 billion)
3. AstraZeneca ($13.15 billion)
4. Glaxo Wellcome ($12.03 billion)
5. Bristol-Myers Squibb ($11.90 billion)
6. Novartis ($11.54 billion)
7. Aventis ($11.06 billion)
8. Johnson & Johnson ($10.94 billion)
9. Pharmacia Corp. ($6.89 billion)
10. American Home Products ($9.12 billion)
Here are thumbnail sketches of these ten and five other large drug companies ranked by total corporate revenues.
MERCK & CO. (headquarters: Whitehouse Station, New Jersey)
1999 revenues: $32.7 billion
1999 profits: $5.9 billion
Merck prospers by selling medications that address a wide range of ailments, including high cholesterol, heart disease, arthritis, osteoporosis and asthma. In addition to developing and producing drugs, Merck manages their use through its subsidiary Merck-Medco, one of the leading prescription-benefit management services.
JOHNSON & JOHNSON (New Brunswick, New Jersey)
1999 revenues: $27.5 billion
1999 profits: $4.2 billion
J&J's pharmaceutical business--which produces drugs for ailments such as gastrointestinal disorders, schizophrenia and fungal infections-- is one of the company's three major segments. The others are consumer products (Tylenol analgesics, Band-Aid bandages, etc.) and professional products such as surgical instruments and joint replacements. The company's LifeScan subsidiary recently pleaded guilty to federal criminal charges related to the marketing of a defective diabetes diagnostic test.
NOVARTIS (Basel, Switzerland)
1999 revenues: $20.4 billion
1999 profits: $4.2 billion
Novartis was formed by the 1996 merger of Swiss drug giants Ciba-Geigy and Sandoz. In addition to prescription drugs, the company is a major producer of contact lenses and ophthalmic medications. Trying to insulate themselves from the controversy over genetically modified foods, Novartis and AstraZeneca agreed to spin off their agrochemical businesses into a new operation called Syngenta.
BRISTOL-MYERS SQUIBB (New York City)
1999 revenues: $20.2 billion
1999 profits: $4.2 billion
Although it may be better known for its personal care products (Clairol) and over-the-counter medications (Excedrin), Bristol-Myers Squibb is a significant force in pharmaceuticals. Its leading drugs include the cholesterol medication Pravachol and the cancer medication Taxol.
1999 revenues: $17.8 billion
1999 profits: $1.1 billion
Created by the 1999 merger of Sweden's Astra and Britain's Zeneca Group, the company focuses on seven major therapeutic areas: cardiovascular, central nervous system, gastrointestinal, infection, oncology, pain control and anesthesia and respiratory.
ROCHE HOLDING LTD. (Basel, Switzerland)
1999 revenues: $17.3 billion
1999 profits: $3.6 billion
This is a holding company created in 1989 for the Swiss drug giant F. Hoffman-LaRoche, which had made its name producing vitamins and later the tranquilizers Librium and Valium but is also remembered for a major industrial accident that released a dioxin-contaminated cloud from its plant in Seveso, Italy in 1976. In 1990 Roche acquired a 60 percent interest in biotechnology pioneer Genentech. Today its pharmaceutical products include antibiotics and treatments for AIDS and obesity. Roche was one of seven major vitamin producers that agreed last year to pay more than $1 billion to settle price-fixing charges.
PFIZER (New York City)
1999 revenues: $16.2 billion
1999 profits: $3.2 billion
Pfizer's standing among the drug giants jumped this year when it completed the acquisition of its rival Warner-Lambert (1999 revenues: $12.9 billion). Pfizer is best known these days for its impotence drug Viagra, but it also has products for cardiovascular problems, infectious diseases and central nervous system disorders.
GLAXO WELLCOME (Middlesex, United Kingdom)
1999 revenues: $13.7 billion
1999 profits: $2.9 billion
Glaxo Wellcome, the result of a 1995 merger, is a major producer of drugs for respiratory problems, AIDS and other diseases as well as the smoking-cessation aid Zyban. It is slated to merge later this month with SmithKline Beecham to form an industry powerhouse.
AMERICAN HOME PRODUCTS (Madison, New Jersey)
1999 revenues: $13.6 billion
1999 loss: $1.2 billion
AHP's subsidiary Wyeth Pharmaceuticals produces the widely used estrogen-replacement drug Premarin as well as anti-infectives, vaccines, and treatments for cardiovascular, musculoskeletal and neurological ailments. AHP, which also owns a large stake in the biotechnology company Immunex, recently paid $30 million to settle Food and Drug Administration charges that the company repeatedly violated manufacturing regulations at two of its pharmaceutical factories. The loss in 1999 was mostly due to an after-tax charge of $3.3 billion in connection with litigation over AHP'S anti-obesity drugs Redux (dexfenfluramine) and Pondimin (fenfluramine).
SMITHKLINE BEECHAM (Middlesex, United Kingdom)
1999 revenues: $13.5 billion
1999 profits: $1.8 billion
In addition to prescription drugs such as the antidepressant Paxil and vaccines for diphtheria, tetanus and whooping cough, SmithKline Beecham produces over-the-counter items such as Geritol vitamins and NicoDerm CQ antismoking patches. SmithKline chief executive Jan Leschly initiated the so-called merger of equals with Glaxo Wellcome.
ABBOTT LABORATORIES (Abbott Park, Illinois)
1999 revenues: $13.2 billion
1999 profit: $2.4 billion
Pharmaceutical products include antibiotics and drugs for the treatment of epilepsy, urological disorders, ulcers and HIV. Abbott also makes diagnostic kits for HIV, hepatitis and other diseases as well as infant formula (Similac) and nutritional supplements (Ensure).
AVENTIS (Schiltigheim, France)
1999 revenues: $12.7 billion (prior to consolidation with Hoechst)
1999 loss: $859 million
Aventis is the result of a slow merger of France's Rhone-Poulenc and Germany's Hoechst (once part of the notorious IG Farben combine). The two companies have been spinning off operations (such as agrochemicals) to satisfy antitrust regulators in the United States and Europe. Aventis has recently been at the center of a controversy over the infiltration of its StarLink bioengineered corn, which is not approved for human consumption, into the U.S. food supply.
ELI LILLY & CO. (Indianapolis)
1999 revenues: $10.0 billion
1999 profits: $2.7 billion
Lilly is best known as the producer of Prozac, the world's leading antidepressant, which will begin to lose its patent protection next year. It also makes drugs for schizophrenia, pancreatic cancer, osteoporosis, ulcers and other ailments.
SCHERING-PLOUGH (Kenilworth, New Jersey)
1999 revenues: $9.2 billion
1999 profits: $2.1 billion
The company's Top pharmaceutical is the antihistamine Claritin. It also produces anti-infective, anti-cancer and cardiovascular drugs.
PHARMACIA (Peapack, New Jersey)
1999 revenues: $7.5 billion (prior to merger with Monsanto)
1999 profit: $803 million
Pharmacia is the shortened name taken by Pharmacia & Upjohn after it acquired controversial life sciences giant Monsanto (about 15 percent of which is being spun off as a publicly traded company). Pharmacia's drug products treat glaucoma, growth disturbances, bladder problems, cancer and central nervous system disorders.
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