cents per gram. Term purchase contract prices were often lower than published bulk prices, touching 4.1 cents per gram early in 1956. Dosage form prices to private hospitals and retailers decreased in the same way: thus Merck & Co. was quoting $20 per gram in October 1945, $4 in April 1947, $1.60 in July 1948, and 36 cents from 1953 to 1956. In the intense price competition which has prevailed in the marketing of streptomycins, published prices have frequently been nominal, with transactions taking place at lower figures.

There are price differences among the major manufacturers and outside packagers of streptomycins. Quotations for 1 gram of powder in 1956 were 33 cents for 3 manufacturers; 36 cents for 2 others; and 29, 34, and 45 cents, respectively, for 3 packagers.

Price competition in the older penicillin and streptomycin dosage forms is also disclosed by the records of large quantity purchases by the Armed Services Medical Procurement Agency (now Military Medical Supply Agency). Thus between 1949 and 1956 the price per bottle of procaine penicillin (1,500,000 units in aqueous suspension) went down from $1.09 to 10.5 cents, as each manufacturer reduced the price in turn. Dihydrostreptomycin sulfate prices took a similar though less precipitous downward course, and in early 1956 were 14 percent of the 1949 price. Later in 1956 they recovered to 20 percent of the 1949 price. Prices paid by the Government for these drugs have been well below those paid by civilians.

The first broad spectrum antibiotic, American Cyanamid's Aureomycin (the generic name being chlortetracycline), was introduced at a price to retailers and hospitals of $15 for 16 capsules of 250 milligrams each on December 1, 1948. Two months later the price was reduced to $10. On March 25, 1949, Parke, Davis put Chloromycetin (chloramphenicol) on the market at the same price per capsule. On February 1, 1950, both companies reduced their prices to $8. Two months later, Chas. Pfizer & Co. introduced its Terramycin (oxytetracycline) at $8.40. On May 1, 1950, Aureomycin and Chloromycetin were reduced to $6, a price which Pfizer did not meet until November 1 of the same year. The next reduction, to $5.10, was initiated by Pfizer on September 27, 1951, and was met by both the others on October 1. This price remained unchanged thereafter.

The price of Aureomycin had thus decreased 66 percent from 1948 to 1951, a period during which procaine, penicillin and streptomycin prices decreased by about the same amount, or 69 percent. These latter prices kept on declining after 1951, whereas broad spectrum prices did not. This contrast was related, on the supply side of the market, to the difference in number of producers. There were 13 makers of procaine penicillin and 7 of the streptomycins in 1951 as against only 3 makers of the broad spectrum antibiotics.

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A fourth broad spectrum antibiotic, tetracycline, was added in 1953, at the same price as the others. Only one new producer was thus brought into the broad spectrum business, which in 1956 had 4 manufacturers (3 of them having exclusive products) plus 2 licensed sellers, as against 7 manufacturers making and 9 selling (2 of them out of stocks on hand) procaine penicillin and 5 making and selling the streptomycins. Price alternatives for some customers, and the possibility of additional price competition under certain conditions, are afforded by the non-manufacturing packagers of procaine penicillin and the streptomycins.

In 1951 Aureomycin accounted for 41.5 percent, Chloromycetin for 36.5 percent, and Terramycin for 22.0 percent of the dollar sales of broad spectrum antibiotics for medicinal purposes. In 1956 they accounted for 12.1, 15.7, and 20.6 percent of medicinal sales, respectively, while the new product, tetracycline, accounted for 51.6 percent.

By contrast with the stability of broad spectrum prices quoted to distributors, hospitals, and consumers after 1951, prices charged the Armed Services Medical Procurement Agency continued to decline. Between 1950 and 1956, for example, prices it paid for Terramycin dropped 62 percent as compared with the 39 percent decline (all of it prior to October 1951) in Terramycin prices quoted to retailers.

Records of the Veterans' Administration show it to have been purchasing tetracycline in 1954 at $24.22 (less 2 percent for cash) per bottle containing one hundred 250-milligram capsules-the same price paid by drug wholesalers then and later. In October 1954 Cyanamid offered to cut the price 10 percent, to $21.80 (less 2 percent), but Pfizer took the contract with a further 10.2-percent reduction, to $19.58 (less 2 percent). When purchasing on sealed bids was instituted in 1955, $19.58 less 2 percent, or precisely $19.1884, was bid several times by all manufacturers, except that Pfizer became low bidder on the two largest contracts by naming a net cash price of $19.188.

On one Veterans' Administration contract for 50,400 bottles (of capsules) in October 1956, to be delivered to 3 destinations, Pfizer reduced its bid another 10 percent, or to $17.63. Cyanamid was still bidding $19.58, though 2 weeks earlier it had sold 90,000 bottles (of tablets), to be delivered to the Armed Services Medical Procurement Agency at one destination, at an $11 price.

7. Analysis of financial data submitted by antibiotics manufacturers

In 1956 net sales of antibiotics from domestic production of Chas. Pfizer & Co. were equal to 39.4 percent of its consolidated net sales (which includes some production in plants abroad). The percentages

for the other 11 manufacturers ranged from 20.4 down to 4.6 percent. Thus antibiotics constitute merely a segment of the pharmaceutical industry.

American Cyanamid led the industry in dollar sales of antibiotics in both 1950 and 1956, its percentage of the total increasing from 23.1 to 26.6 percent. Pfizer was in second place, with 12.6 and 20.8 percent. Lilly advanced from sixth (7.7 percent) to third (9.5 percent). Olin Mathieson was fourth in both years (9.0 and 9.2 percent), while Parke, Davis dropped from third (10.4 percent) to fifth (7.3 percent).

The top 4 had 55.1 percent of sales in 1950 and 66.1 percent in 1956. This 11-point gain was slightly less than the combined gain, 11.7 points, of Cyanamid and Pfizer. Their great expansion resulted almost entirely from successful ventures in the broad spectrum field. Four of the 16 companies producing antibiotics in 1950 had dropped out before 1956.

These 16 companies responded at least in part to the Commission's cost questionnaire sent out in May 1957, though all companies stated that full cost data were not kept for individual antibiotic products or for the companies' antibiotics business as a whole. When the same plant was used for more than one product, manufacturing costs as submitted were based in part on allocations. Certain expenses of selling and administration were also allocated, usually on the basis of relative sales. The Commission has not had the accounting manpower available to verify these figures or allocations, but presents ratios based upon them at their face value. The fact that allocations are necessary makes it impossible to draw firm conclusions when the differences in ratios are small.

There have been considerable variations in the calculated ratios of profit before Federal taxes to net sales on antibiotics operations. The most profitable company in the 1950-56 period had the most stable ratio, ranging from a high of 53.7 to a low of 37.9 percent. For all other companies the spread between the high and low years was much wider. Seven reported net losses on antibiotics operations in one or more years.

In 1956, this ratio of net profit before taxes to sales ranged between 1.8 and 40.5 percent for the 9 companies submitting comparable data. Other ratios showed similar variations: cost of goods sold between 21.4 and 77.6 percent; advertising and selling expenses between 9.6 and 30.7 percent; research costs between 3.5 and 10.5 percent; and administrative and general expenses between 2.1 and 14.2 percent. If 1956 figures for all reporting companies are averaged, 39.0 cents of each dollar of net sales of antibiotic substances represented cost of goods sold, as against 44.4 cents in 1950. Selling and advertising expenses came to 21.6 cents (12.9 in 1950), research to 6.7 cents (4.4)

in 1950), and administrative and general to 8.7 cents (7.6 in 1950). After account is taken of 3.2 cents of income from royalties and licenses and 1.2 cents in other costs, 26.0 cents remained in 1956 for net profit before Federal taxes. Reported net profit had been as low as 19.3 cents per dollar of sales in 1952 and as high as 34.5 cents in 1951.

For 1950, the company responses showed penicillin, the broad spectrum antibiotics, the streptomycins, and "all others" (consisting almost entirely of combinations, and bacitracin) accounting for 44.4, 35.4, 13.4, and 6.8 percent, respectively, of total dollar sales of antibiotics exclusive of one specialty penicillin. In 1951 the broad spectrum group took over first place, and in 1955 it accounted for 56.1 percent of the total. In 1956 it accounted for 50.9 percent, and all penicillin, the streptomycins and "all others" (more than half of which now consisted of combinations and erythromycin) for 19.0, 3.9, and 26.2 percent, respectively.

The 1956 ratios of net operating profit to net sales were as follows: recently patented and higher priced penicillins, 43.4 percent; broad spectrum group, 36.8 percent; "all others," 17.2 percent; older penicillins, a deficit of 5.6 percent; streptomycins, a deficit of 41.4 percent. In 1950 and 1951, just prior to the severe competitive price cutting of 1952, penicillin and the streptomycins had shown net operating profits equal to about 20 percent of net sales.

The streptomycin figures (which are missing for 1 of the 3 largest producers since it did not furnish a usable breakdown) indicate successive deficits of 4.7, 20.9, 37.4, and 41.4 cents per dollar of sales from 1953 through 1956, while physical output was rising to a new peak. If such losses occurred, it is easy to see why one firm ceased production in 1955 and another in 1956. Other companies have stated that they stayed in business for such reasons as reluctance to drop a needed product from their line, or hope of increased world demand.

Regardless of the exactness of particular allocations, it is clear that the recently patented penicillins, the broad spectrum antibiotics, and some at least of the antibiotic combinations and specialties in the "all others" group have yielded higher profits than the older, nonexclusive penicillins and streptomycins.

Six companies submitted usable data from which net profit before Federal taxes on antibiotics could be computed as a percentage of assets devoted to antibiotics operations. Such profit ratios ranged in 1956 from 2.0 to 57.6 percent, and in 1950-55 from deficits for 3 companies in at least one year to a profit of 101.2 percent for one company in 1950. The weighted average returns for the seven successive years were 42.2, 37.1, 18.2, 19.4, 20.6, 23.3, and 28.5 percent.

Ratios of profits to assets on antibiotic operations for 5 of these companies were compared for 1950-56 with (1) ratios of total phar

maceutical profits to pharmaceutical assets of the 5 companies; (2) profit ratios of 10 pharmaceutical companies not making antibiotics; and (3) profit ratios on the consolidated operations of the 10 antibiotics manufacturers which publish financial statements. The first comparison showed higher average antibiotics profits for 1950–55, but higher pharmaceutical profits for 1956. The second showed a lower average profit ratio for the 10 nonantibiotics companies than for the antibiotics companies in 1950 and 1951, but a higher ratio from 1952 to 1956. The third brought out that the nonpharmaceutical profit ratios of the antibiotics companies were significantly lower throughout than their profit ratios either on antibiotics or on all pharmaceutical operations.

Profit comparisons on the basis of sales were made for six antibiotics companies which furnished data on both their antibiotics and pharmaceutical operations. (1) Two companies showed higher antibiotics than pharmaceutical profit ratios each year, 2 others in 3 of the 7 years, and the 2 remaining companies in none of the years. (2) The 10 nonantibiotics companies showed higher profit ratios in 5 of the 7 years and approximately the same ratios in the other 2 years. (3) Nonpharmaceutical operations of the antibiotics companies were, as in the asset comparison also, less profitable than pharmaceutical operations. This ratio of profits before Federal taxes to assets employed in antibiotic operations, for the six companies submitting usable data, was higher each year from 1950 through 1956, than the same ratio for chemical manufacturing, and still higher than for all manufacturing. The antibiotics ratio was slightly higher than that for "Drugs and Medicines," in the only year 1956, for which the latter series was available.

The Commission recognizes that relative profit ratios depend on basic factors such as trends in demand costs, efficiency, and technology, as well as on risks and the degree of competition. It has not made an assessment of antibiotics profits in the light of these factors.

8. Patent ownership and licensing in the antibiotics industry The penicillin discoveries of Drs. Fleming, Chain, and Florey were not patented. Patents on the basic process improvements developed by scientists of the United States Department of Agriculture were licensed freely in accordance with United States Government policy. From these discoveries and the likewise unpatented improvements in the penicillin mold in 1943, a new branch of the pharmaceutical industry came into being.

Patent Office classification files, supplemented by data submitted by 11 manufacturers in response to the first FTC data request, disclose that 671 antibiotics patents had been issued through September 1956.