Learn the stock market › Sectors › Lesson 5 of 6
Key numbers for pharma companies
Drug makers in numbers
| Company | Gross margin | Research | P/E |
|---|---|---|---|
| Vertex Pharmaceuticals | 86.2% | 33.7% | 35.2 |
| Regeneron Pharmaceuticals | 85.4% | 40.8% | 20.0 |
| Eli Lilly | 83.0% | 20.5% | 43.9 |
| Gilead Sciences | 78.8% | 19.7% | – |
| Merck | 74.8% | 24.3% | 148.2 |
| Pfizer | 74.3% | 16.7% | 42.0 |
| Zoetis | 71.8% | 7.4% | 13.5 |
| Bristol-Myers Squibb | 71.1% | 20.6% | 13.8 |
| AbbVie | 70.2% | 14.9% | 50.1 |
| Johnson & Johnson | 67.9% | 15.6% | 41.9 |
| Amgen | 67.2% | 19.8% | 26.7 |
| Middle of all 101 companies | 57.0% | 13.0% | 23.6 |
Why a drug maker looks different
A high gross margin. The gross margin is 74.3% in the middle, against 57.0% for all the largest companies. Most of the cost is not in making a pill but in everything that came before: research, trials on patients and approval. How the gross margin is counted is in the lesson on margins.
Research is a large cost every year. 19.8% of revenue goes to research and development in the middle, against 13.0%. Research is the company's future sales, so it is taken as a cost long before it can pay anything back.
Patents run out. A patent gives the sole right to a medicine for a limited time. When it expires, others may sell copies, and the price often falls fast. A company that gets much of its sales from one medicine depends on new ones arriving in time.
A higher P/E. In the middle P/E is 38.6, against 23.6 for all the companies. The market pays for medicines that are not sold yet. So a failed trial of an important medicine can make the price fall a lot in one day.
What the table does not show
Which medicines are on the way and when patents expire are in the companies' own reports. A small research company with no sales has no margins to compare at all and is valued entirely on what may come.
Test yourself
A drug maker's largest medicine loses its patent next year. What usually happens?