4 ms·

The thing is, pharma industry is clearly hugely profitable, so why doesn't the government invest in a wide shotgun approach to fund half (or more) of the entire

by swores 3y ago

The thing is, pharma industry is clearly hugely profitable, so why doesn't the government invest in a wide shotgun approach to fund half (or more) of the entire industry and in return take half (or more) of the profits to either keep as revenue or reinvest in pharma or in other healthcare? (Obviously theoretically ideal economically would be if the government could just have a socialised department discovering and developing all new drugs needed with no profit margins, but then you lose out on benefits of competition, profit motives etc. so a split model makes sense, where they're still private companies but the gov invests hugely in them - but in return for the fair share of profits, rather than so many current grants where the gov pays funding and it doesn't even get them a good discount on buying the overpriced final drug.

NavinF 3y ago
You could say that about any industry. "The thing is, the S&P 500 is clearly hugely profitable, so why doesn't the government invest in a wide shotgun approach to fund half (or more) of the entire S&P 500 and in return take half (or more) of the profits to either keep as revenue or reinvest in the S&P 500 or in other stock indexes?" Gov't investment in any industry just because it's profitable is a bad idea for obvious reasons.
- swores 3y ago
  Sure, except that investing in the S&P is just artificially inflating the economy as a whole, whereas my suggestion isn't intended to be "this is my advice for the most profitable use of a government $", it's a suggestion for boosting a small part of the economy to speed up the development / progress of new drugs as a societal benefit. People who defend the huge profit amounts of pharma companies (which ultimately come from consumers needing healthcare, paying either directly or through insurance) say it's fair because of the huge amount they invest to create the drugs, if the government does most of the investing then they can take most of the profits to subsidise free pills for their population. Seems to me like a more direct benefit (in addition to potential economic benefits of boosting investment levels in a high-exporting industry too) than just the government buying S&P500 index funds.
  - mlrtime 3y ago
    Look what happens to University tuition when the government gets involved with funding. Not saying it would be the same model but I have doubts this could completely take over R&D funding.
  - ejb999 3y ago
    define 'hugely profitable' - PFE is one of the biggest, their stock is at about the same price it was 25 years ago, so inflation already made you lose 50% of your money - with dividends maybe you broke even for a 25 year investment. I would not call that hugely profitable. Why don't we go after the actual 'hugely profitable' companies if that is the goal.
- insane_dreamer 3y ago
  I see Pharma more like energy utilities in that they provide an essential service that citizens cannot live without. Therefore maybe they should be regulated like utilities (which are private, or can be private, but their margins are capped and set by the government).
  - nradov 3y ago
    And yet the human race managed to survive for millennia with no pharmaceutical industry at all. The industry as we know it has only existed for about 100 years. While it has been helpful in extending lifespans and improving quality of life, it is nowhere as important as utilities like electricity and water.
    - bart_spoon 3y ago
      The human race also survived without electricity for just as long…
- SilasX 3y ago
  Not ... sure that's the best reductio, since many governments do make broad-based equity investments, via Sovereign Wealth Funds, and it does bolster their long-term financial outlook. To bring it back to the specifics of the original argument, and refine it a bit, the relevant point is, "If these are such easy profits from doing nothing, why doesn't the government get in on it?" Alternatively, why don't the universities themselves develop drugs to the point of FDA approval and mass marketing? The unfortunate answer is: it's not actually easy profits. It's highly speculative and difficult work to turn a drug from "supported by university research" to "ready to market to the public". Sometimes universities do try to cover some of that ground though.
vasco 3y ago
The same government that can't come up with sensible policies to regulate big pharma and gets played by all kinds of lobbyists suddenly is going to figure out how to develop drugs more efficiently than the industry does?
- swores 3y ago
  I'm suggesting the government take the role of investor, replacing (or rather, overshadowing) the financial firms & private owners who are the current investors, not taking over the way the companies work. Could either give a body like the NIH a huge new budget to use for investing in pharma companies, or could pass a law that says any company that successfully raises X money with Y criteria (either in VC, or by IPO, or however) must automatically allow the government to buy x% at the same price (or a slight discount) as other buyers? And sure, lobbyists, money in politics and quality of current US politicians are a problem to face with pretty much any aspect of improving the country, but I don't think that's a reason to never discuss ideas about how to do so. (Then again I'm not American so I don't have horse in this race, but I feel similarly about my UK.)
  - Nevermark 3y ago
    Pumping dumb money into a sector isn't likely to translate into profits. It will translate to a bubble and a lot of opportunists taking the money. It isn't that it is impossible, but it would take a slow start, and sustained experimentation and organizational learning over many years, before the amount of money that could make a dent in the problem could reliably perform well. All while VCs would be lobbying to end the incursion, and the easier money - therefore lower returns, it would inflict on their territory.
bart_spoon 3y ago
Hugely profitable is perhaps misleading. It’s hugely profitable in the sense that the aggregate profits are high, simply due to both the sheer number of products sold and their high prices. But in terms of profit to expense ratios the Pharma industry is actually at the low end of the spectrum. Most other industries, including tech, are far more profitable in this regard.
- selcuka 3y ago
  I wouldn't call it the low end of the spectrum [1]: > Pharmaceutical companies had significantly higher annual profit margins than S&P 500 companies for the 3 primary outcome measures of gross profit, EBITDA, and net income (P < .001) (Table 1). > For pharmaceutical companies, the median gross profit margin was 76.5% (95% CI, 70.3%-82.7%), the median EBITDA margin was 29.4% (95% CI, 26.3%-32.5%), and the median net income margin was 13.8% (95% CI, 10.2%-17.4%). For S&P 500 companies, the median gross profit margin was 37.4% (95% CI, 35.2%-39.6%), the median EBITDA margin was 19% (95% CI, 17.8%-20.3%), and the median net income margin was 7.7% (95% CI, 7.2%-8.2%) (Table 2). [1] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7054843/ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7054843/
  - NavinF 3y ago
    Now show me the Sharpe ratio. High risk, high reward

by swores 3y ago

NavinF 3y ago

You could say that about any industry. "The thing is, the S&P 500 is clearly hugely profitable, so why doesn't the government invest in a wide shotgun approach to fund half (or more) of the entire S&P 500 and in return take half (or more) of the profits to either keep as revenue or reinvest in the S&P 500 or in other stock indexes?" Gov't investment in any industry just because it's profitable is a bad idea for obvious reasons.

swores 3y ago
Sure, except that investing in the S&P is just artificially inflating the economy as a whole, whereas my suggestion isn't intended to be "this is my advice for the most profitable use of a government $", it's a suggestion for boosting a small part of the economy to speed up the development / progress of new drugs as a societal benefit. People who defend the huge profit amounts of pharma companies (which ultimately come from consumers needing healthcare, paying either directly or through insurance) say it's fair because of the huge amount they invest to create the drugs, if the government does most of the investing then they can take most of the profits to subsidise free pills for their population. Seems to me like a more direct benefit (in addition to potential economic benefits of boosting investment levels in a high-exporting industry too) than just the government buying S&P500 index funds.
- mlrtime 3y ago
  Look what happens to University tuition when the government gets involved with funding. Not saying it would be the same model but I have doubts this could completely take over R&D funding.
- ejb999 3y ago
  define 'hugely profitable' - PFE is one of the biggest, their stock is at about the same price it was 25 years ago, so inflation already made you lose 50% of your money - with dividends maybe you broke even for a 25 year investment. I would not call that hugely profitable. Why don't we go after the actual 'hugely profitable' companies if that is the goal.
insane_dreamer 3y ago
I see Pharma more like energy utilities in that they provide an essential service that citizens cannot live without. Therefore maybe they should be regulated like utilities (which are private, or can be private, but their margins are capped and set by the government).
- nradov 3y ago
  And yet the human race managed to survive for millennia with no pharmaceutical industry at all. The industry as we know it has only existed for about 100 years. While it has been helpful in extending lifespans and improving quality of life, it is nowhere as important as utilities like electricity and water.
  - bart_spoon 3y ago
    The human race also survived without electricity for just as long…
SilasX 3y ago
Not ... sure that's the best reductio, since many governments do make broad-based equity investments, via Sovereign Wealth Funds, and it does bolster their long-term financial outlook. To bring it back to the specifics of the original argument, and refine it a bit, the relevant point is, "If these are such easy profits from doing nothing, why doesn't the government get in on it?" Alternatively, why don't the universities themselves develop drugs to the point of FDA approval and mass marketing? The unfortunate answer is: it's not actually easy profits. It's highly speculative and difficult work to turn a drug from "supported by university research" to "ready to market to the public". Sometimes universities do try to cover some of that ground though.

vasco 3y ago

The same government that can't come up with sensible policies to regulate big pharma and gets played by all kinds of lobbyists suddenly is going to figure out how to develop drugs more efficiently than the industry does?

swores 3y ago
I'm suggesting the government take the role of investor, replacing (or rather, overshadowing) the financial firms & private owners who are the current investors, not taking over the way the companies work. Could either give a body like the NIH a huge new budget to use for investing in pharma companies, or could pass a law that says any company that successfully raises X money with Y criteria (either in VC, or by IPO, or however) must automatically allow the government to buy x% at the same price (or a slight discount) as other buyers? And sure, lobbyists, money in politics and quality of current US politicians are a problem to face with pretty much any aspect of improving the country, but I don't think that's a reason to never discuss ideas about how to do so. (Then again I'm not American so I don't have horse in this race, but I feel similarly about my UK.)
- Nevermark 3y ago
  Pumping dumb money into a sector isn't likely to translate into profits. It will translate to a bubble and a lot of opportunists taking the money. It isn't that it is impossible, but it would take a slow start, and sustained experimentation and organizational learning over many years, before the amount of money that could make a dent in the problem could reliably perform well. All while VCs would be lobbying to end the incursion, and the easier money - therefore lower returns, it would inflict on their territory.

bart_spoon 3y ago

Hugely profitable is perhaps misleading. It’s hugely profitable in the sense that the aggregate profits are high, simply due to both the sheer number of products sold and their high prices. But in terms of profit to expense ratios the Pharma industry is actually at the low end of the spectrum. Most other industries, including tech, are far more profitable in this regard.

selcuka 3y ago
I wouldn't call it the low end of the spectrum [1]: > Pharmaceutical companies had significantly higher annual profit margins than S&P 500 companies for the 3 primary outcome measures of gross profit, EBITDA, and net income (P < .001) (Table 1). > For pharmaceutical companies, the median gross profit margin was 76.5% (95% CI, 70.3%-82.7%), the median EBITDA margin was 29.4% (95% CI, 26.3%-32.5%), and the median net income margin was 13.8% (95% CI, 10.2%-17.4%). For S&P 500 companies, the median gross profit margin was 37.4% (95% CI, 35.2%-39.6%), the median EBITDA margin was 19% (95% CI, 17.8%-20.3%), and the median net income margin was 7.7% (95% CI, 7.2%-8.2%) (Table 2). [1] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7054843/ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7054843/
- NavinF 3y ago
  Now show me the Sharpe ratio. High risk, high reward