3 ms·

It appears that net profit (for AbbVie, at least) tends to sit quite comfortably between 20-30% most years - 24.27% last year, and hitting almost Elsevier-like

by cnewey 9y ago

It appears that net profit (for AbbVie, at least) tends to sit quite comfortably between 20-30% most years - 24.27% last year, and hitting almost Elsevier-like levels (~32%) in 2009 [1]. That smells like profiteering to me. Add to that their particularly hostile approach to patent applications (100+ on Humira alone), and to me it appears that AbbVie perhaps has a vested interest in stifling innovation and charging large amounts of money for their products "because they can". [1]: http://financials.morningstar.com/ratios/r.html?t=ABBV http://financials.morningstar.com/ratios/r.html?t=ABBV

rayiner 9y ago
That’s about the same profit margin as Google and Facebook and Apple. Are they “profiteering?” Saying that the “reasonable profit” for drug companies should be lower than tech companies, say 15%, is economically equivalent to saying we should impose a 50% tax on drug company profits. Which would be nuts. You tax products you want less of (cigarettes, sugary drinks) not ones you want more of.
barry-cotter 9y ago
Call me when AbbVie is listed with Roche, Novartis, Pfizer or GlaxoSmithKline as one of the big pharmaceutical multinationals. A relatively small company having a blockbuster success and returning huge dividends to shareholders is why people are willing to invest in biotech/pharmaceutical startups at all. Every biotech startup formed around one drug that gets serious funding burns at minimum a decade of man years and at the beginning most of those man years are going to be researchers with doctorates. Absolutely nothing gets to market with that little investment and most of these companies fail. The point about the pharmaceutical sector’s profit margins is about the sector more than it is individual companies. Minnows that make supernormal profits expand and as they expand their profit margins decline because they use up the most profitable opportunities and move on to less profitable ones until there’s nothing left. This last bit never actually happens because things change fast and general equilibrium is never reached but that’s the tendency. Large profit margins attract competitors and in the meantime allow those enjoying them to grow. Re: “Profiteering” According to the theory of neoclassical economics, anti-price gouging laws prevent allocative efficiency. Allocative efficiency refers to when prices function properly, markets tend to allocate resources to their most valued uses. In turn those who value the good the most (and not just the wealthiest) will be willing to pay a higher price than those who do not value the good as much. https://en.m.wikipedia.org/wiki/Price_gouging https://en.m.wikipedia.org/wiki/Price_gouging

by cnewey 9y ago

rayiner 9y ago

That’s about the same profit margin as Google and Facebook and Apple. Are they “profiteering?” Saying that the “reasonable profit” for drug companies should be lower than tech companies, say 15%, is economically equivalent to saying we should impose a 50% tax on drug company profits. Which would be nuts. You tax products you want less of (cigarettes, sugary drinks) not ones you want more of.

barry-cotter 9y ago

Call me when AbbVie is listed with Roche, Novartis, Pfizer or GlaxoSmithKline as one of the big pharmaceutical multinationals. A relatively small company having a blockbuster success and returning huge dividends to shareholders is why people are willing to invest in biotech/pharmaceutical startups at all. Every biotech startup formed around one drug that gets serious funding burns at minimum a decade of man years and at the beginning most of those man years are going to be researchers with doctorates. Absolutely nothing gets to market with that little investment and most of these companies fail. The point about the pharmaceutical sector’s profit margins is about the sector more than it is individual companies. Minnows that make supernormal profits expand and as they expand their profit margins decline because they use up the most profitable opportunities and move on to less profitable ones until there’s nothing left. This last bit never actually happens because things change fast and general equilibrium is never reached but that’s the tendency. Large profit margins attract competitors and in the meantime allow those enjoying them to grow. Re: “Profiteering” According to the theory of neoclassical economics, anti-price gouging laws prevent allocative efficiency. Allocative efficiency refers to when prices function properly, markets tend to allocate resources to their most valued uses. In turn those who value the good the most (and not just the wealthiest) will be willing to pay a higher price than those who do not value the good as much. https://en.m.wikipedia.org/wiki/Price_gouging https://en.m.wikipedia.org/wiki/Price_gouging