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Pfizer or Eli Lilly: Which Company Is More Cost Efficient?

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Expense guidance

On its third-quarter earnings conference call, Pfizer (PFE) said it expected its cost of sales as a percentage of its revenue to fall in the range of 20.8%–21.3%. The company expects its selling, informational, and administrative expenses to be ~$14.0 billion–$14.5 billion and its R&D (research and development) expenses to be close to $7.7 billion–$8.1 billion. The company also expects its effective tax rate to be 16% for 2018, while its adjusted other income is expected to be close to $1.3 billion.

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At its 2019 guidance and investment community meeting, Eli Lilly and Company (LLY) forecast marketing, selling, and administrative expenses in the range of $6.3 billion–$6.5 billion and R&D expenses in the range of $5.2 billion–$5.4 billion for 2018. The company said that it expected its other income to be $75 million–$200 million in the year. Eli Lilly also expects its GAAP (generally accepted accounting principles) and non-GAAP tax rates to be close to 23.0% and 16.0%, respectively.

Expense expectations

Wall Street analysts have forecast Pfizer’s SG&A (selling, general, and administrative) expenses as a percentage of its revenues to be 26.76%, 26.28%, and 25.87%, respectively, in 2018, 2019, and 2020. On the other hand, Eli Lilly is expected to report SG&A expenses as a percentage of revenue of 26.41%, 25.66%, and 25.31%, respectively, in 2018, 2019, and 2020. While both companies are expected to gradually reduce the percentages of their revenue that are associated with marketing and commercial activities from 2018 to 2020, Eli Lilly is expected to be slightly more cost efficient in its SG&A activities than Pfizer.

Wall Street analysts expect Pfizer’s R&D expenses as a percentage of its revenues to be 14.66%, 14.79%, and 14.84%, respectively, in 2018, 2019, and 2020. On the other hand, Eli Lilly is expected to report R&D expenses as a percentage of its revenues of 21.81%, 21.89%, and 21.67%, respectively, in 2018, 2019, and 2020. Eli Lilly is thus investing a higher percentage of its total revenue in supporting its research pipeline.

In the next article, we’ll compare the shareholder values generated by Pfizer and Eli Lilly in greater detail.

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