Fred Ledley, Bentley University – Pharmaceutical Companies Profitability

On Bentley University Week: Drug companies seem to be making a lot of profit, but are they?

Fred Ledley, professor of natural and applied sciences, finds out.

Fred Ledley is Director of the Center for Integration of Science and Industry at Bentley University and professor of Natural & Applied Sciences and Management. He has an MD from Georgetown University School of Medicine, a BS in physical science from the University of Maryland (College Park), trained in pediatrics and genetics at the Boston Children’s Hospital, and was an American Cancer Society post-doctoral fellow with Dr. David Baltimore at MIT. He has served on the faculties of the Howard Hughes Medical Institute, Baylor College of Medicine, and Texas Children’s Hospital and has been a founder and senior executive of several biotechnology companies developing gene therapy and personalized medicine. His current research focuses on advancing the translation of scientific advances for public value by promoting synergies between science, business, and public policy. Recent research has characterized the public sector (NIH) contribution to new drug approvals, value creation and product development by newly-public biotechnology companies, and the profitability of large pharmaceutical companies.

Pharmaceutical Companies Profitability

Our research asked the question of whether large pharmaceutical companies are excessively profitable. There is, of course, a public perception that drug prices are too high, and that one reason for this is the excess profit of the pharmaceutical industry.

Pharmaceutical companies are very profitable. From 2000-2018, 35 of the largest pharmaceutical companies had profits in excess of 1 and a half trillion dollars.

The question of whether these companies are excessively profitable is more complicated. Our research showed that these 35 large pharmaceutical companies were, in fact, significantly more profitable than other large companies in the S&P 500.

But when we did controls, we found that they were not more profitable than other large companies that are similarly engaged in R&D and research-driven business.

So what does this mean? Are pharmaceutical companies excessively profitable?

This question cannot be answered by comparing financial numbers, but requires us to ask what is fair or unfair profit and it requires us to understand what constitutes a successful business, one that is capable of discovering and producing the drugs that the public needs.

It also requires us to recognize that the drugs that these companies produce are essential for people’s lives, and that the affordability and availability of drugs is not only a business issue, but also an issue of social justice and even human rights.

Our research is only one piece of understanding what it takes for the pharmaceutical industry to make a reasonable profit and also produce the drugs that the public needs.