Take a closer look at the post, and you'll see that what JunkDNA just said is that is going to happen, and hard. Right now they run about a 17% profit margin [1]. If they lose their cash cows en masse, that's going to go negative, fast. That's not that great a profit margin from that point of view.
What are they going to do then? The only thing they really can, slash costs. It seems unlikely the all the slashing is going to come out of everything except R&D.
We're ultimately going to have to deal with the fact that as a society we've chosen to make it extremely expensive to bring new drugs to market. Basically, our extremely high standards are/were sustainable only because we also gave them patent protection. It is going to be economically infeasible to have both extremely high standards for new drugs, then refuse to protect them for long enough to recoup their costs. There is no law of economics that says a thing must be produced; raise the cost above what can be recovered and what happens is that it won't be produced.
That's generally not a model that results in decreased costs, not to mention that we're in a situation now and for the forseeable future where people really need to stop thinking of the government as a free money fountain. We already can't fund our current commitments, adding yet more billions onto the already huge pile is not necessarily a good idea.
(And don't even think of trying to sell me on it being a net money saver. It won't be after the special interest groups are done with it.)
The money needs to come from somewhere. I'd rather not have the costs concentrated on the sick. We do have plenty of money to fund everything we need if we pull our military out of most foreign countries. I believe that Nasa's annual budget, for example, is roughly the same cost as 1 day in Iraq [citation needed].
In 2011, we spent 700 billion on the defense department, and we spent 1,205 billion dollars more than we took in. It's time to stop thinking of the government as a free money fountain.
I'd suggest it's much cheaper to look into how we could reduce the regulations making it so expensive, rather than throw government money at a problem of the government's creation. At the point where we are seriously talking about the entire edifice collapsing one must take seriously the question whether the costs of our regulatory regime have managed to exceed the benefits. Right now we have a terribly irrational balance between those who are hurt taking insufficiently vetted drugs vs. those who are hurt by not having drugs available for years that turn out safe. The former are visible and the latter invisible, but they are still real. A classic recipe for irrationality.
The reason the EPS hasn't taken a hit is because these companies aren't stupid. If they can't bring in more money by selling new products, they cut costs instead. Pharmas have been laying off huge numbers of research scientists and slashing their sales forces in record numbers. If you follow the industry, it seems like a major Pharma site is closing completely every few months. In the short-term, this props up the numbers, but the day of reckoning is still going to come.
Should doctors really be finding out about drugs from salespeople?
It seems to me that this is a large part of the problem and perverts the incentives in the industry not to produce what people need but what they can sell.
There has got to be a more efficient way for doctors to discover what drugs are useful to the patients they treat.
Heck, look at the tech startup industry. Very few if any of us learn about new startups from traveling salespeople. We learn about them from websites like Hacker News, TechCrunch, TechMeme, etc.
Do we have doctor bloggers that make an effort to learn about new drugs and discover what is and isn't worthwhile?
I would imagine that the very reliance on salespeople actually makes it harder to bring good, useful drugs to market because the industry generates its own noise for doctors that they themselves need to cut through.
Every pharma salesperson I've ever known has been for all intents and purposes indistinguishable from viagra spam emails in my inbox, except for they have a pulse and "pay" for readership through expensive dinners and other niceties.
The entire drug information dissemination machine is broken.
I didnt't downvote, but you might be drawing a too rosy picture of the software industry. There are a fleet of travelling salesman paying for dinners and giving away luxury goods . You'll see microsoft throwing big monney around to have it's products adopted. You'll see big industry contractors playing all the dirty games to get to sit at the same table as a big potential client.
It's plenty corrupt when you look at the big fishes, just not as much as the pharmatical industry (yet).
Most profitable? Citation needed. Profit margins are higher in the tech industry--companies like Microsoft, Apple, and Google all have higher margins than pharma. In terms of nominal profits, pharma does not come close to the oil and gas industry.
I don't think there's an unbreakable bond between profitability and sustainability. To use a tech industry analogy, despite making insane profits off of Windows as it is (and has been for 20 years), Microsoft has realized that we've entered a post-PC world, and modified Windows to run on new form factors, such as the tablet.
I really don't see your point. Microsoft's basic business model hasn't changed, their products are just evolving. Drug companies make new drugs and refine old ones all the time. Other than whining by obviously-biased spokespeople for the drug industry, I have no reason to believe their business model can't be sustained indefinitely under the current regulatory regimes.
The majority of blockbuster drugs are about to go off of patent protection. This is where the majority (if not all) of the profit in the industry comes from, as well as a huge chunk of the rests of their costs.
It's an interesting time in the industry but the patent cliff is real and the industry is going to change quite a bit more in the next few years.
The model is absolutely unsustainable - there isn't enough blockbusters in the pipeline to replace the current, not by a very long shot. And we know what is in in the pipeline because remember it takes 7-11 years to bring a candidate from preclinical through FDA approval, so we have a very good idea of what's coming out (and what's not).
Why would we want to sustain the current model again? What's to say that whatever new model crops up in its place won't be better?
I can't really think of any industry that had their business model collapse that didn't come out of it better than they had been.
Individual players, technologies and processes may disappear, but it's not like demand will, and so long as there is demand, there is a potential market.
I agree, but the risk is this: the current model produces the majority of the world's NME's (new molecular entities, or truly new drugs that aren't just old drug + ibuprofen and a new name). We can sit here and talk about what's wrong with the system, but it ignores that this is the most successful system in the history of medicine for producing truly effective pharmaceuticals.
But ultimately I agree, we may be in for a rough transitory period as far as drug research goes, but what arises from the ashes will likely be a far leaner and more effective beast. It's not like scientists care who is paying the bills.
Does the current model produce the majority of the world's NMEs or does the current model simply bring them to market. From another comment on this topic, it sounds as though most novel research happens not in the labs of companies like Glaxo-Welcome or Pfizer, but in university research labs for a couple of million dollars.
If this is the case, I imagine that any disruptions will occur at the C-suite level mostly, paving the way for entirely new ways of looking at the problem of bringing a new drug to market.
This is a common misconception. While the basic research that underpins the biological theory might happen in academic labs, turning basic research into an actual medicine that will a) work and b) not blow up your liver in the process is exclusively the province of drug companies currently. In fact, medicinal chemists (the people that actally figure out how to make the compound and scale up the manufacturing) are almost exclusively found in industrial drug development companies. They don't exist in any appreciable numbers In academia. They are analogous to the rocket scientists at NASA who worked on the moon missions that everyone worries can't be replaced because they have such specialized experiential knowledge.
Every once in a while an academic research lab will spin off a biotech to develop a new compound, but in general this is not how things have been done in the past. There is a current trend to in-license things from academia to lower the companies' exposure to early R&D risk. This ignores the fact that early research costs pale in comparison to the later clinical trials where most potential drugs go to die. Cancer is particularly bad with something like a 98% failure rate. In-licensing from academia isn't going to buy you much comfort when the thing doesn't work in a phase III clinical trial.
Like the GP post says, things are changing for big pharma, just as they are for MS. There's no way to keep up these prices, and the corresponding R&D costs, when (and not if, because it will happen) healthcare gets nationalized and you have one government representative with the monopsonistic power to really drive prices down.
Tell you what. When these companies stop being the most profitable in America, or even just when their EPS starts declining, I'll believe you.