By the Numbers: Pharmas Join Forces
Three big pharmaceutical companies, Pfizer, Merck, and Eli Lilly, announced last week that they will join forces and create a joint venture called Enlight BioSciences that will help speed drug development. This announcement comes during a somewhat pessimistic period for drug companies. For example, another pharmaceutical company, Applied Biosystems, is concerned that, despite increasing profits, decreased spending in basic research may jeopardize its future.
According to their annual reports, Merck’s net profits have been steadily declining since 2002, and Pfizer experienced a sharp 29 percent drop in net profit in 2007. Eli Lilly, however, has enjoyed a steady increase in net profit since 2004.
Interestingly, Pfizer’s pharmaceutical revenues have actually increased by 11 percent since 2003—the drop in profit has been due to a 28 percent increase in costs. Merck’s situation is similar: since 2002, revenues have increased by about 11 percent, but costs have skyrocketed 32 percent.
Part of the problem may be that the number of new drugs approved by the Food and Drug Administration for Merck and Pfizer has dropped dramatically in recent years. The Wall Street Journal cited increased concern for consumer safety as a reason the FDA is approving fewer and fewer drugs each year.
So is this why these once cut-throat competitors are now joining forces? Perhaps, but don’t forget that all things considered, the pharmaceutical industry is not exactly suffering. Merril Goozner reported in January 2008 that the sector had the highest profit margin, 20 percent, of various other profitable industries, including gas and oil, during the first nine months of 2007. Perhaps the formation of a joint company is the start of a new era for pharmaceutical companies, but either way, we can be sure that drug companies will continue to prosper for many years to come.
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