The healthcare sector is among the stock market's most volatile, primarily because the companies within it can be incredibly difficult to value. Healthcare companies may not have any profits or revenue to speak while they focus on researching the next breakthrough medicine or medical device.

But, within the healthcare sector lies a group of more established companies that are regularly sought after by both active investors and retirees. Collectively, this group of stocks is known by investors as "Big Pharma."

Drug tablets and capsules in different sizes, shapes, and colors.

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Defining "Big Pharma"
What is Big Pharma, you ask? It's a collective term to describe the world's largest publicly traded pharmaceutical companies. While no concrete definition exists, the big difference between Big Pharma and just plain old "pharmaceutical companies" is market valuation, while the difference between Big Pharma and biotechnology is that Big Pharma has a more diverse product portfolio and pipeline. Big Pharma product portfolios are often mature, while biotech portfolios contain a lot more risk but offer a faster rate of growth.

I like to think of the Big Pharma sector as being represented by the following 15 companies:

  • Johnson & Johnson: $276 billion (market value)
  • Novartis: $273 billion
  • Roche: $248 billion
  • Pfizer: $212 billion
  • Merck: $164 billion
  • Sanofi: $134 billion
  • Bayer: $123 billion
  • Novo-Nordisk: $118 billion
  • Bristol-Myers Squibb: $115 billion
  • AbbVie: $110 billion
  • GlaxoSmithKline: $103 billion
  • Eli Lilly: $98 billion
  • AstraZeneca: $84 billion
  • Teva Pharmaceutical: $59 billion
  • Shire: $49 billion

Beyond these 15 companies, the next largest pharmaceutical company by market value is a "mere" $17 billion. Also note that because of their still-maturing product portfolios, companies like Gilead Sciences, Celgene, Amgen, and Biogen still fall under the "biotech" umbrella rather than Big Pharma.

Seven facts you probably didn't know about Big Pharma
With this in mind, I thought it would be educational (and fun) to take a look at seven Big Pharma facts you probably didn't know.

A  large pile of money.

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1. Big Pharma spends crazy amounts on advertising
Some investors think that once a drug is approved by the Food and Drug Administration the hard work is over -- but that couldn't be further from the truth. It takes serious advertising dollars to promote a drug to consumers and physicians in order to build awareness.

According to Kantar Media, pharmaceutical ad spending hit $4.53 billion in 2014, up 18% year-over-year. While not the highest amount of pharma ad spending on record (that would be $5.4 billion in 2006), the double-digit increase implies a healthy business. Of individual Big Pharma companies, Pfizer spent the most at $1.4 billion, while the $272 million spent advertising Eli Lilly's erectile dysfunction drug Cialis was the most for an individual drug in 2014.

2. Big Pharma stocks offer market-crushing shareholder yields
Shareholder yield can be defined as the cumulative amount of money a company returns to its shareholders per year as a percentage of its market value. The two things that qualify as "shareholder returns" are dividends and share repurchases.

Within the Big Pharma sector, you'll regularly find shareholder yields far in excess of 2%, which is sort of the median for S&P 500 companies. Pfizer, for instance, repurchased $6 billion of its own shares in the first quarter of 2015 and plans to pay out $7.2 billion in dividends this year. That's $13.2 billion returned to investors from a company with a market value of $212 billion, or a shareholder yield of 6.2%! It's no wonder retirees love this sector!

Source: GlaxoSmithKline via Facebook.

3. Big Pharma pipelines are huge
Big Pharma companies are, by the aforementioned loose definition, stacked in both their product portfolios and pipelines. Yet somehow investors seem to forget the latter.

For instance, Roche currently has 115 ongoing clinical trials or registrations as of April 22, 2015. That's not a misprint... 115 ongoing clinical indications currently being studied. This includes 76 separate oncology (cancer) trials (including 24 that are in late-stage trials), 15 neuroscience studies, and 12 immunology indications. These figures don't even include the dozens of preclinical studies currently ongoing, or Roche's numerous collaborations and partnerships.

Scientists doing research in a laboratory.

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4. Big Pharma spends a fortune on research and development
One downside to having an enormous pipeline is that running clinical trials and paying researchers to develop new therapies can cost a lot of money.

Based on R&D spending data in 2013 collected from Leon Markovitz from dadaviz.com, 10 of the 15 aforementioned Big Pharma companies (Teva, Novo-Nordisk, Bayer, Shire, and Bristol-Myers excluded) collectively spent $65.8 billion running trials and paying staff to discover new therapies. Novartis took the crown with R&D spending just shy of $10 billion in 2013, with Roche running a close second at $9.3 billion.

5. Big Pharma is home to some of the highest profit margins
Big Pharma pipelines are enormous, and developing new therapies isn't cheap; luckily for these drug developers new therapies also possess quite a bit of pricing power, which comes in handy when their creators need to recoup their development costs.

According to a 2013 Forbes comparison of profit margins in the five primary industrial sectors, pharmaceuticals tied with banks for the highest average profit margin at 19%. This was well ahead of the average profit margin for media stocks, oil & gas companies, and automakers, which produced mid-single-digit profit margins (automakers) to low double-digit profit margins (media).

A man watches in dismay as money flies out of his wallet.

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6. Big Pharma gets fined pretty often
It's not entirely uncommon for drug developers to be fined for their advertising practices if they're misleading, or for other wrongful acts brought to light. Big Pharma sits at the center of the some of the biggest fines ever divvied out among healthcare companies.

In 2012, GlaxoSmithKline agreed to a whopping $3 billion fine and pled guilty to criminal charges of knowingly promoting some of its top-selling anti-depressant drugs such as Paxil and Wellbutrin to people under the age of 18. Neither drug was approved by the FDA to be used for off-label purposes in minors. Similar mammoth fines ($2.2 billion) were paid by Johnson & Johnson in 2013 for its promotion of off-label drug use, and Pfizer ($2.3 billion) in 2009 for illegally marketing Bextra, a painkiller. Although these fines are huge, they typically represent just a few weeks of sales for these pharma giants.

7. Big Pharma is home to some megamergers
Some of the biggest mergers and acquisitions in history occurred among current Big Pharma names.

In 1999, Pfizer purchased Warner-Lambert for $87.3 billion (the sixth biggest deal in M&A history) in order to gain hold of a cholesterol-lowering drug known as Lipitor. Lipitor would only go on to become the best-selling drug of all-time. Other big deals include Sanofi's purchase of Aventis for $73.4 billion in cash and stock in 2004, and Glaxo's purchase of SmithKline Beecham in 2000 for $72.4 billion in stock. M&A activity helps these companies cut costs via operational synergies while also boosting their pricing power and profitability by adding portfolio and pipeline diversity.