Wednesday, August 30, 2006

IRS Data Shows Increasing Pharma Income From Royalties

by Ben Krohmal
CPTECH has requested and received from the United States Internal Revenue Service tax return data for the years 1995 to 2003 for companies in the pharmaceutical and medicine manufacturing industry.

Among the more striking findings is a dramatic increase in the level and share of income received from royalties.

First, a few notes about the data.

Data cover the pharmaceutical and medicine manufacturing industry (NAICS code 325410), filing U.S. Corporation Income Tax Return Form 1120. Virtually all pharmaceutical corporations are required to file form 1120, with the exception of those meeting nine requirements including having gross receipts, total income, and total assets under $500,000.

Sales: we use line 1c on form 1120, for gross receipts or sales less returns and allowances. I believe this normally would include both US and foreign sales for US firms, but only income from US subsidiaries for foreign owned firms. There is also an exclusion of some income that qualifies under the form 8873 "Extraterritorial Income Exclusion." The sales reported on this form will also include some non-pharmaceutical sales, for companies with broader product lines. The number of firms filing form 1120 ranged from 1,150 to 1,801.

Royalties: we use line 7 on the form 1120, for "gross royalties." We assume that royalties are primarily from patents, but also include royalties from the use of know-how, copyrights and other royalty generating items. The number of firms reporting royalties is much smaller, ranging from 101 to 151 in years for which we have data.

Year Sales returns Royalties returns %
1995 144,919,796 1,312 3,472,600 106 2.4
1996 165,914,444 1,418 4,200,321 147 2.5
1997 175,317,302 1,801 5,001,710 133 2.9
1998 189,613,246 1,493 7,309,528 144 3.9
1999 201,290,916 1,150 9,811,938 151 4.9
2000 203,210,319 1,231 11,356,862
2001 218,514,161 1,367 12,486,640
2002 249,096,548 1,278 13,415,678 101 5.4
2003 273,870,756

Total 1,821,747,488

A note on obtaining IRS SOI Data

Statistics of income data are a fruitful source of information on corporations’ costs and earnings. General SOI data, including data from the health care industry, are available online. More detailed breakdowns by industry, including the pharmaceutical and medicine manufacturing industry (NAICS code 325410), are available from the IRS for a negotiable fee.


Post a Comment

Links to this post:

Create a Link

<< Home