Look at pharma through a profit lens and you see an industry pulling in two different directions. It feels like analyzing IT on one side and manufacturing on the other. Margins don’t just differ, they diverge by multiples, and the gap is widening quarter by quarter.
The New Pharma Elite: Operating Like Tech Companies
Start with United Therapeutics. Narrow specialization, strict cost control, reasonable R&D. The result? 50% margin, almost like top IT companies. They operate like a technology firm, not like a traditional pill factory.
Martine Rothblatt deserves credit here. She was one of the first to show that pharma can work like an IT business, with process discipline and focus on efficiency. The results are visible. For the twelve months ending June 30, 2025, United Therapeutics posted $3.078B in revenue, up 17.62% year over year. Growth driven not by sprawling scale, but by precision strategy.
Similar to them are Novo Nordisk and Vertex. Their portfolios are narrow: not hundreds of drugs, but several key products. Prices for these drugs are high, demand is stable, margins stay at 40%+ level. For regular pharma, this is impressive.
Novo Nordisk’s net margin as of March 31, 2025 sits at 34.52%. Their quarterly revenue for June 30, 2025 came in at $11.690B - a 19.03% YoY increase. Their GLP-1 franchise alone controls 55% of global market share. Importantly, Novo Nordisk reinvests with discipline, maintaining R&D intensity around 15% and largely avoiding mega-deals. That is strategic precision over acquisition sprees.
The Legacy Giants: Drowning in Their Own Scale
Now consider the largest incumbents: Pfizer, Merck, Sinopharm. Recognized brands, global reach, immense balance sheets. Yet their profitability disappoints. Pfizer’s net margin as of March 31, 2025 is only 12.62%. Strong in many industries, but weak compared to focused pharma peers.
The reason is scale without efficiency. SG&A expenses - marketing, sales, administration - consume huge portions of revenue. On top of that, regulators are freezing or lowering drug prices.
Pfizer’s story is specific. To restore competitiveness, they cut $4B in net operating expenses by 2024 and forecast another $500M in savings for 2025. That kind of belt-tightening reveals deep operational bloat. Despite $63.833B in revenue for the trailing twelve months through June 30, 2025 - more than 20 times United Therapeutics - Pfizer delivers a fraction of the margin.
The R&D Paradox: More Spending Does Not Mean More Profit
One of pharma’s myths is “spend more on R&D, make more money.” Reality doesn’t back it up. For example, BioNTech 18%, Moderna 0%. Lots of innovation, but huge risks, long investment cycles, and uncertain payback periods.
United Therapeutics demonstrates the opposite principle: target rare diseases with urgent unmet need, spend strategically, and margins stabilize. Novo Nordisk focuses R&D on diabetes and obesity - massive patient populations with clear clinical outcomes. Meanwhile, legacy players invest across dozens of therapeutic areas. The result? Dilution, duplicated programs, higher costs, shaky profitability.
SG&A: The Silent Profit Killer
A quiet truth: the strongest lever in pharma profitability is SG&A control. Control marketing and admin expenses, and you can invest in growth and new products, not just spend money.
Review any major pharma income statement and SG&A outpaces R&D comfortably. Conference budgets, promotional armies, and internal bureaucracy eat away at revenue streams. Focused players solve this problem by design. Specialists in rare diseases do not require 5,000 reps to explain the science. Patients are concentrated and the medical community already knows the product. Efficiency is built into the model.
The Technology Disruptors: Rewriting the Rules
Some newer firms sidestep traditional constraints entirely. Insilico Medicine, for example, integrates AI across its drug discovery platform. Estimated development cycle times fall from 15 years to around 8. For a sector where every year of delay is worth billions in lost NPV, that is transformative.
This is a shift of business model. Traditional players built operational empires under the assumption that drug development takes decades and large armies of managers to navigate. Tech-driven pharma assumes the reverse - build lean platforms, shorten cycles, and let technology reduce both cost and risk.
Specialized Powerhouses: Lean, Focused, Profitable
This is giving rise to what can be called specialized powerhouses. They combine biotech’s deep scientific focus with the operational efficiency of a top software company.
Vertex Pharmaceuticals offers a perfect example. Its cystic fibrosis portfolio serves about 70,000 patients worldwide, yet drives billions in revenue with envy-inducing profit margins. Or Regeneron, with its antibody platform advantage. Both companies concentrate expertise, master platforms, and allocate capital like a scalpel instead of a shotgun.
Their shared traits are straightforward:
Deep expertise in narrow therapeutic categories
Trusted influence among key medical specialists
Proprietary technology platforms that build defensive moats
Relentless allocation discipline that scales their edge
The Value-Based Future: Efficiency as Survival
On the horizon, value-based care and payer skepticism will intensify. Margins will not stay high without proof of outcomes. The players that survive are those able to prove both medical and economic value in real-world settings.
The world where pharma could market heavily and win adoption regardless of outcomes is disappearing. Health systems demand data. Regulators push for evidence across clinical and practical outcomes. Payers want ROI on treatments.
This tilts the market toward companies already equipped to prove value inside focused populations, rather than sprawling giants dependent on marketing spend.
The Capital Allocation Divide
The difference now isn’t just in operations, but in how firms allocate capital.
Traditional pharma resembles manufacturing: scale capacity, expand territory, consolidate rivals. The focus is volume and presence.
The new pharma resembles technology: strengthen platforms, pursue compounding advantages, build ecosystems that concentrate market power. United Therapeutics leverages expertise in pulmonary arterial hypertension to expand into adjacent categories without acquisition. Novo Nordisk builds an ecosystem around metabolic disease, reinforcing existing dominance.
The Investor Reality
For investors, this split poses tough trade-offs. Mega-cap pharma offers dividends and apparent safety, but scaling costs neutralize leverage. Each incremental dollar requires more SG&A, compliance, and bureaucracy.
Focused pharma promises higher margins and stronger growth, but risks are concentrated. A failed trial or competitive move can seriously dent valuation.
The best opportunities may lie in tracking legacy giants as they shift - if they actually cut costs, refocus pipelines, and integrate the technology mindset.
Looking Forward: Two Future Models
Pharma is diverging into two archetypes:
Infrastructure Players: Large, global, diversified. Competing through operational reach and predictability. Lower margins, higher stability.
Innovation Players: Narrow, tech-enabled, precision focused. High margins, faster cycles, but risk concentrated in fewer bets.
Both models work. What doesn’t work is being stuck between them - too broad to dominate a niche, too slow to compete on value and tech.
The split is happening already. As investors, employees, and patients look ahead, the crucial question is: which version of pharma do you want to align with?
Really enjoyed your analysis, especially the “infrastructure vs. innovation” split. Is it worth looking at the different business models within pharma, eg. clinical research vs. manufacturing & drug sales; medical devices or laboratory testing. Pfizer, for example, is heavily engaged in clinical research and drug development, but has also proven it can be first to deliver a vaccine when urgency demands it. From my perspective, clinical research in particular is in urgent need of stronger IT, better software, and more efficient business processes.