4 ms·

R&D isn't as much of the pharma budget as I thought so it's hard to blame high R&D costs as the biggest driver for how expensive drugs are. You mentioned Novo N

R&D isn't as much of the pharma budget as I thought so it's hard to blame high R&D costs as the biggest driver for how expensive drugs are. You mentioned Novo Nordisk and looking at their financials they reported a net profit of $6.8 billion in H1 against an R&D budget of $3.7 billion. Their "cost of sales" was $3.0 billion, which someone please correct me if I'm wrong, but I think includes manufacturing (but not sales/distribution). But this still means that profit was more than it's total R&D and manufacturing budget. Source: https://www.sankeyart.com/sankeys/public/all/33990/ https://www.sankeyart.com/sankeys/public/all/33990/

rahimnathwani 2y ago
Is this survivorship bias?
unlikelytomato 2y ago
I can understand why those numbers are turning heads in isolation. However, the headlines are always something about how a $10k should be priced at $50. I struggle to see how those kinds of pricing gaps disappear even if that profit number drops to 0.
cyberax 2y ago
In general, pharma companies actually spend more on RnD than any other company type, except for the semiconductor development. That's mostly because around 90% of all drugs fail clinical tests.
a_puppy 2y ago
Novo Nordisk won the lottery by developing Ozempic, an extraordinarily successful drug. (See e.g. https://www.nytimes.com/2023/08/28/business/denmark-ozempic-wegovy.html https://www.nytimes.com/2023/08/28/business/denmark-ozempic-...) If you cherry-pick the most successful pharma companies, of course they're going to look unreasonably profitable. For a fair comparison, you need to look at the global pharma industry as a whole. To start the discussion, I found this analysis of global pharma industry profitability: https://www.ispor.org/docs/default-source/euro2023/poster-ispor-profitability-291023130819-pdf.pdf?sfvrsn=cd54cb76_0 https://www.ispor.org/docs/default-source/euro2023/poster-is... Note that only 55% of the pharma companies even made a profit; the other 45% lost money. And the average profit margin was around 20%. So even if pharma companies voluntarily relinquished all profits, drugs would only be 20% cheaper! The fundamental issue is that drug development is simply expensive. When people get angry about pharma profits, they're barking up the wrong tree.
victorbjorklund 2y ago
That is like looking at a lottery winner and say "clearly gambling on the lottery is profitable”. You have too look at the industry as a whole and not the outliers.

rahimnathwani 2y ago

Is this survivorship bias?

unlikelytomato 2y ago

I can understand why those numbers are turning heads in isolation. However, the headlines are always something about how a $10k should be priced at $50. I struggle to see how those kinds of pricing gaps disappear even if that profit number drops to 0.

cyberax 2y ago

In general, pharma companies actually spend more on RnD than any other company type, except for the semiconductor development. That's mostly because around 90% of all drugs fail clinical tests.

a_puppy 2y ago

Novo Nordisk won the lottery by developing Ozempic, an extraordinarily successful drug. (See e.g. https://www.nytimes.com/2023/08/28/business/denmark-ozempic-wegovy.html https://www.nytimes.com/2023/08/28/business/denmark-ozempic-...) If you cherry-pick the most successful pharma companies, of course they're going to look unreasonably profitable. For a fair comparison, you need to look at the global pharma industry as a whole. To start the discussion, I found this analysis of global pharma industry profitability: https://www.ispor.org/docs/default-source/euro2023/poster-ispor-profitability-291023130819-pdf.pdf?sfvrsn=cd54cb76_0 https://www.ispor.org/docs/default-source/euro2023/poster-is... Note that only 55% of the pharma companies even made a profit; the other 45% lost money. And the average profit margin was around 20%. So even if pharma companies voluntarily relinquished all profits, drugs would only be 20% cheaper! The fundamental issue is that drug development is simply expensive. When people get angry about pharma profits, they're barking up the wrong tree.

victorbjorklund 2y ago

That is like looking at a lottery winner and say "clearly gambling on the lottery is profitable”. You have too look at the industry as a whole and not the outliers.