“drug companies are not particularly profitable”
Unfortunately, in absolute terms, they are. Of the top 12 publicly owned pharma firms, profits in 2010 were at double-digit levels with very few exceptions, regardless of whether profits were measured as a percent of revenues, assets or stockholder’s equity.
2010 figures here:
http://money.cnn.com/magazines/fortune/fortune500/2010/industries/20/index.html
What IS true, but rarely successfully conveyed to the general public, is that pharma is much riskier than other industries. Therefore, the cost of capital is higher (pharma has to pay higher dividends to stockholders or interest on debt in order to persuade investors to put their money into the industry). CBO and others have done careful studies showing that once you account for this higher cost of capital—reflecting the higher volatility of returns—pharma’s profits are only a teensie bit higher than what would be expected compared to less risky industries.
That is exactly the point. That is precisely how the leftist media manages to anger the public. "ExxonMobil made $10B --- wow, that's a lot of money --- my money," think Joe and Jane.
Firstly, profit is not profitability. That is not profitability. Sure, $100 is excellent profit if you invested $200, but it's a lousy one if you invested $1,000,000. Neither pharma nor oil companies are particularly profitable --- as measured by return on investment.
And they cannot be particularly profitable. If they become such for a couple of quarters, people start buying more stock, the price of stock increases, and profitability falls.
Secondly, it is unfair to point to a particular year. Look at a decade of any pharma company or an oil company and you'll only confirm what I said. I don't recall people sending donations to ExxonMobil a decade ago, when oil was $11/barrel and the oil companies were loosing money. Nobody worried, "All those poor tens of thousands of people that are going to be layed off -- may be we should pass special tax cuts for oil companies." What I do remember is how people, even "conservatives," were urging special taxes on oil companies when gas was $4 and "record profits (absolute, of course) of ExxonMobil" was all over the newspapers. So, please take multi-year averages, as one should in such cases (more precisely, take total dollar profit in 10 years and divide by the initial price of the stock).
Finally, as you pointed out so well, it is not the profitability itself but risk-adjusted profitability that is the only correct criterion. Why do people buy a stock that grows 5% on average rather than another stock that grows 8%? Precisely because the latter is more risky.
So, do the writers in the media not know these basics that every finance or MBA student learns in his introductory course? Of course they do. But you never here any of that in the news. By hiding relevant facts and deliberately misusing the measures --- reporting profits rather than profitability --- the media is deliberately and grossly misleading.
What distresses me personally, is that they are winning even among the "conservatives" --- judging by the routine bashing of corporations, Wall Street, CEOs, bonuses, etc. without any basis in fact or reason. Just post something --- it does not matter what --- with the words "Goldman Sacks" and watch the sparks fly.