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If one company has expensive treatments for a disease, and another company has a cure for it (at any price), which company is going to make more money? The one

by Kluny 10y ago

If one company has expensive treatments for a disease, and another company has a cure for it (at any price), which company is going to make more money? The one who has the cure, I'd say. Multiple companies could collude to keep a cure off the market. But such cooperation would require all the collaborators to be simultaneously honorable enough to keep the agreement, and dishonorable enough to keep life-saving drugs away from people who are dying. I find that unlikely. Meanwhile it would only take one traitor to make the deal collapse. Such a traitor could be any person who is in on the secret and also has a family member affected by the disease in question. It takes dozens of scientists, project managers, lab assistants, and random extra staff to create a new drug. I don't believe that many people can keep any kind of secret for any amount of time, let alone a secret as hot as a cure for (in this case) HIV. This is why I don't believe in the idea that drug companies intentionally keep cures off the market. If no cure is available, it's probably because it genuinely doesn't exist yet.

darawk 10y ago
> If one company has expensive treatments for a disease, and another company has a cure for it (at any price), which company is going to make more money? The one who has the cure, I'd say. That's not quite correct. The company with the cure will make more money going forward. But not necessarily overall, and the difference there is important. Let's say you're a venture investor in biotech, and you're thinking about whether to fund the development of an HIV cure or a better HIV treatment. Both will completely replace the existing market in HIV drugs. When you do the net present value calculation for the treatment however, you'll see that you have some probability of people staying on it basically forever. That means that over time, you can extract more money from it, which means of course that you ought to be willing to invest more money in developing it. It is through this completely rational, non-evil mechanism that treatments may receive more funding than cures. Nobody here is suppressing anything, it's just that one of them will receive more funding than the other because it has a greater potential ROI.
- Kluny 10y ago
  In that case, do charity organizations that collect money to cure specific diseases or cancers actually make a difference, since their donations are supposed to go to research for cures?
  - darawk 10y ago
    I'd say that they do make a difference relative to doing nothing. It's a way of funding cures that's independent of profit, same with government funding. As far as I can tell, the only solutions to this problem are government funding and private funding of cures. A market based solution might be allowing pharma companies to charge extremely exorbitant prices for their cures, sufficient to recoup the foregone profits of treatment. But i'm not sure how well that would go down.
- jcoffland 10y ago
  However, if a competing venture capital company funds the cure when you fund the treatment then you lose your investment.
  - darawk 10y ago
    True, but that only incentivizes you to avoid funding biotechs entirely :).
    - jcoffland 10y ago
      So then both options have equal value to a VC.
      - darawk 10y ago
        They definitely don't have equal value. The potential revenue stream for the treatment is much higher than the cure. You have to subtract the probability that someone else finds a cure from that revenue stream, amortized and discounted over its lifetime. So, it may be that sometimes that causes it to make sense to search for a cure (if there is a particularly promising pathway that someone else is likely to explore, for instance), but all else being equal, it probably makes more sense to fund treatments. The initial cost of developing any new drug is extremely high. We're talking hundreds of millions to billions. That's just to break even. That means if you have a cure for a disease that 100k people have, you have to charge them each $10k just to break even. That is insane. The numbers of course scale directly with the number of patients, too. If only 10k people in the world have the disease, you need to charge them each 100k, just to break even (the average cost of developing a new drug is actually 2.5 billion, but for these purposes let's say you get lucky and it's 'only' 1 billion). If you want to actually make a profit, you'll need to charge even more than that.
obastani 10y ago
Maybe it wouldn't keep a cure, once discovered off the market, but perhaps it could reduce investment in trying to find a cure to begin with? I can imagine that this wouldn't require much collusion, and there's nothing illegal about not investing in finding a cure. Even from a moral standpoint, it's a tougher argument to make.
mioelnir 10y ago
First of all, if a pharma company had an annual income of 2bn from HIV treatments, and that companies CEO went forward with a HIV cure that is only predicted to earch 3bn overall; that CEO could essentially be removed from his position, as that would not be in the best interest of the company and shareholders. Also, there does not need to be an evil twist where someone deliberately holds back a developed cure. It is much easier to cut/steer the research in ways that favor treatment/management options, ensuring that a cure would only be found be accident.
- snowwrestler 10y ago
  > that CEO could essentially be removed from his position, as that would not be in the best interest of the company and shareholders. No. Stuff like this gets posted to HN all the time but that is just not how things work. In a public corporation, management has broad latitude to make decisions about how to run the company and shareholders have essentially no say in it. They can sell the stock if they don't like it. If you don't believe me, consider that Tim Cook, CEO of one of the most valuable public companies on Earth, said almost exactly the same thing in a shareholder meeting and nobody batted an eye.

by Kluny 10y ago

darawk 10y ago

> If one company has expensive treatments for a disease, and another company has a cure for it (at any price), which company is going to make more money? The one who has the cure, I'd say. That's not quite correct. The company with the cure will make more money going forward. But not necessarily overall, and the difference there is important. Let's say you're a venture investor in biotech, and you're thinking about whether to fund the development of an HIV cure or a better HIV treatment. Both will completely replace the existing market in HIV drugs. When you do the net present value calculation for the treatment however, you'll see that you have some probability of people staying on it basically forever. That means that over time, you can extract more money from it, which means of course that you ought to be willing to invest more money in developing it. It is through this completely rational, non-evil mechanism that treatments may receive more funding than cures. Nobody here is suppressing anything, it's just that one of them will receive more funding than the other because it has a greater potential ROI.

Kluny 10y ago
In that case, do charity organizations that collect money to cure specific diseases or cancers actually make a difference, since their donations are supposed to go to research for cures?
- darawk 10y ago
  I'd say that they do make a difference relative to doing nothing. It's a way of funding cures that's independent of profit, same with government funding. As far as I can tell, the only solutions to this problem are government funding and private funding of cures. A market based solution might be allowing pharma companies to charge extremely exorbitant prices for their cures, sufficient to recoup the foregone profits of treatment. But i'm not sure how well that would go down.
jcoffland 10y ago
However, if a competing venture capital company funds the cure when you fund the treatment then you lose your investment.
- darawk 10y ago
  True, but that only incentivizes you to avoid funding biotechs entirely :).
  - jcoffland 10y ago
    So then both options have equal value to a VC.
    - darawk 10y ago
      They definitely don't have equal value. The potential revenue stream for the treatment is much higher than the cure. You have to subtract the probability that someone else finds a cure from that revenue stream, amortized and discounted over its lifetime. So, it may be that sometimes that causes it to make sense to search for a cure (if there is a particularly promising pathway that someone else is likely to explore, for instance), but all else being equal, it probably makes more sense to fund treatments. The initial cost of developing any new drug is extremely high. We're talking hundreds of millions to billions. That's just to break even. That means if you have a cure for a disease that 100k people have, you have to charge them each $10k just to break even. That is insane. The numbers of course scale directly with the number of patients, too. If only 10k people in the world have the disease, you need to charge them each 100k, just to break even (the average cost of developing a new drug is actually 2.5 billion, but for these purposes let's say you get lucky and it's 'only' 1 billion). If you want to actually make a profit, you'll need to charge even more than that.

obastani 10y ago

Maybe it wouldn't keep a cure, once discovered off the market, but perhaps it could reduce investment in trying to find a cure to begin with? I can imagine that this wouldn't require much collusion, and there's nothing illegal about not investing in finding a cure. Even from a moral standpoint, it's a tougher argument to make.

mioelnir 10y ago

First of all, if a pharma company had an annual income of 2bn from HIV treatments, and that companies CEO went forward with a HIV cure that is only predicted to earch 3bn overall; that CEO could essentially be removed from his position, as that would not be in the best interest of the company and shareholders. Also, there does not need to be an evil twist where someone deliberately holds back a developed cure. It is much easier to cut/steer the research in ways that favor treatment/management options, ensuring that a cure would only be found be accident.

snowwrestler 10y ago
> that CEO could essentially be removed from his position, as that would not be in the best interest of the company and shareholders. No. Stuff like this gets posted to HN all the time but that is just not how things work. In a public corporation, management has broad latitude to make decisions about how to run the company and shareholders have essentially no say in it. They can sell the stock if they don't like it. If you don't believe me, consider that Tim Cook, CEO of one of the most valuable public companies on Earth, said almost exactly the same thing in a shareholder meeting and nobody batted an eye.