Just how big is Big Pharma?

Big Pharma cost

A week ago, serial blogger Megan McArdle posted an entry on her blog entitled Does the US Really Account for so Much Pharma Profit? In the week that followed, McArdle's post has caused a real furore amongsts blog-readers, sparked by the frustration that surfaced from McArdle's apparently incorrect assumptions.

According to McArdle's fumbled post, the author claimed that the US accounts for somewhere between 80 and 90 percent of pharma net profits, "after you've accounted for various issues". However, this grossly inaccurate figure has since been retracted by the author.

McArdle has tried to counteract various criticisms of her article, by pulling in the help of the Organisation for Economic Co-Operation and Development's (OECD) Pharmaceutical Pricing Policies Global Market survey to help clear up the issue.

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According to the OCED, 2008 saw four of the five largest pharmaceutical companies increase their total revenue coming from the US market bymore than 30 percent. For Johnson & Johnson, that figure leapfrogs to 53 percent (excluding consumer products), while Pfizer's US revenue accounts for 41 percent of its total last year. GSK sees the figure falling at 38 percent, while Sanofi-Aventis is positioned at 31 percent. Just behind, Bayer still managed to accumulate 28 percent of total revenue for 2008 from the US market.

Such figures suggest that McArdle's initial query wasn't so ridiculous then, despite the discrepancies the post brought with it. A look at the actual amounts behind Big Pharma's revenues and profits from last year bolster her concerns as well.

Take for instance the massive $10.4 billion profit GSK experienced last year, or the $8 billion raised by Pfizer, which is now recognized as the world's largest pharmaceutical company following its merger with key rival Wyeth. These figures are massive by anyone's standards. As such, the pharmaceutical industry, which has largely weathered the economic crisis in comparison to other sectors, is fast being refered to as "too big to fail". This tag was last applied to the financial services industry before the recession hit and the bailout began.

While it seems McArdle's online post might stick around in blog-readers' minds for all the wrong reasons, a look at the statistics behind the furore is certainly worthwhile. Big Pharma might be big, there can be no denying that; but too big? Well, we'll let you make up your own mind.

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