Table 3. Differential Profit Margins of Pharmaceutical Companies and Sectors Within the S&P 500a.
| Sector | Differential Gross Profit Margin (95% CI), % Revenueb | Differential EBITDA Margin (95% CI), % Revenueb | Differential Net Income Margin (95% CI), % Revenueb |
|---|---|---|---|
| Pharmaceutical reference)c | 70.3 (61.1 to 79.5) | 25.2 (21.3 to 29.2) | 10.2 (6.6 to 13.8) |
| Sector within S&P 500d | |||
| Technology | −14.4 (−24.0 to −4.9) | −3.2 (−7.9 to 1.4) | 0.9 (−2.9 to 4.7) |
| Otherd | −32.2 (−49.3 to −15.1) | −1.4 (−7.8 to 5.1) | 0.3 (−4.8 to 5.3) |
| Utilities | −45.9 (−54.7 to −37.1) | 1.6 (−2.5 to 5.8) | −3.3 (−6.9 to 0.3) |
| Consumer staples | −33.6 (−43.9 to −23.3) | −10.1 (−14.9 to −5.2) | −3.9 (−7.7 to 0.0) |
| Materials | −40.3 (−51.0 to −29.7) | −8.5 (−13.5 to −3.6) | −4.3 (−8.1 to −0.6) |
| Communications | −27.5 (−40.9 to −14.0) | −4.2 (−10.5 to 2.0) | −4.6 (−8.1 to −1.0) |
| Industrials | −43.7 (−53.0 to −34.4) | −12.0 (−16.1 to −7.8) | −4.9 (−8.4 to −1.4) |
| Consumer discretionary | −39.4 (−49.0 to −29.9) | −13.1 (−17.1 to −9.0) | −5.4 (−9.0 to −1.8) |
| Energy | −40.4 (−54.1 to −26.8) | −4.0 (−15.9 to 8.0) | −5.7 (−9.9 to −1.5) |
| Health care (other) | −48.3 (−64.5 to −32.0) | −12.3 (−18.7 to −5.9) | −5.8 (−9.7 to −1.9) |
| Pseudo R2 | .17 | .06 | .02 |
Differential profit was estimated using the multivariable median regression model including an indicator variable for each sector, a control for company size (market capitalization), and indicator variables for each year (year fixed effects) to control for time trends. Regressions were performed with 6889 fiscal years (observations) for the years 2000 to 2018, representing the combined pharmaceutical and S&P 500 data sets. For definitions of profit metrics, see the Box or eAppendix in the Supplement.
The differential profit margin of companies in each of the S&P 500 sectors relative to pharmaceutical companies was estimated as the coefficient on the indicator variable for that sector. This represents the differential profit margin between companies in that sector and pharmaceutical companies after controlling for size and year. Negative values indicate that the profit margins of pharmaceutical companies were larger than those for that sector.
The reference profit margin is the intercept of the median multivariable regression model. In these multivariable models, the reference profit margin reflects the median profit margin of pharmaceutical companies when all year indicator variables and the company size variable are set equal to zero.
Companies in the S&P 500 data set were classified by the Bloomberg Industry Classification System. Health care (other) comprised companies classified as health care, excluding pharmaceutical companies. Other comprised primarily companies in the financial services and real estate sectors that were not excluded from the S&P 500 data set under initial sample criteria. Sectors are ordered by the differential net income margin of the sector relative to pharmaceuticals.