[Excel_Wizard]

What's the company's overall margin?

Everything objective you stated sounds like it could describe either a good company or a bad company, all conditional upon whether the margins are huge or fair.

Any pharma company that spends on R&D will have to rake in profits from somewhere to subsidize R&D efforts. R&D is extremely risky (most drug R&D projects fail) and has a very long time period before payback if it succeeds.

[dv_dt]

Maybe. There are studies which point out some interesting large scale trends. One that private pharma R&D is getting less efficient, creating fewer and fewer drugs per billion dollars. Another is that many current high profit drugs had their early fundamental breakthrough research as government funded R&D, and that todays gov't funding of drug R&D is at a relative low because private industry is theoretically taking care of it all now. Another observation is that private R&D often focuses far more on the development than the research, developing new drug "packaging and delivery", in part to gain IP extensions, instead of fundamentally new drugs.

[entee]

It's important to understand why the efficiency is going down, and it's not because the companies themselves suck more every year. It's because of two main drivers:

1.) The easy targets are mostly gone. All the biology we understand very well either has drugs already, or for some key reason can't be addressed with the drug discovery system we have today (see KRAS, though there are glimmers of home there). This means we have to go after harder diseases that aren't as well understood or have complex etiology. Necessarily that's less efficient.

2.) When you drug something, it eventually becomes incredibly cheap to use that drug, and it becomes the benchmark. (AKA the "better than the Beatles problem") As a pharma company you're competing against the former, better (because you were going after easier biology) versions of yourself all the time. This is also true in software, good software often becomes somewhat commoditized. However, in software we've had exponentially increasing compute capacity for some time, which means the next product can be exponentially better than the previous one simply because new things become actually possible to do when they weren't before. This by and large isn't and can't be true in pharma.

[dv_dt]

I do think some aspect of this is true, but I think how research is directed is systemically off today. You may want to read this overview report (it has footnotes for all the research it cites). But there are quotes in there like:

"While critical medical needs remain unmet, a majority of new medicines developed have no added therapeutic value."

https://www.ucl.ac.uk/bartlett/public-purpose/sites/public-p...

[mattkrause]

That's a frustrating article.

Figure 1 shows that recent neuro/psychatric drugs don't have dramatic effects. That's true--but it's not for want of trying. People have been bashing their heads against the brain for decades, but it turns out to be a really hard problem. Biogen lost $18B of market cap on its aducanumab trials early this year. Eli Lilly, AstraZeneca, Roche, Pfizer, Merck, and Johnson & Johnson have all also had big Alzheimer's trials go sideways. I'm not sure that throwing more money at the same amyloid hypothesis will help. Maybe share buybacks—which get taxed and thereby fund the NIH--might not be the worst idea.

The paper also complains about expensive drugs and me-too drugs. The initial HepC drugs were crazy expensive (nearly six figures), but produced quick cures in virtually all of the patients. This was still a massive win over slow, ineffective treatments that still ended with liver cirrhosis/ cancer/transplants for half of the patients. The subsequent "me- too" drugs, which mostly target the same pathway, don't work appreciably better (hard to demonstrate improvement vs a 95%+ cure rate) but have driven the price down by tens of thousands of dollars.

[wbl]

Taking one pill instead of six at different times is packaging and delivery. It's also transformed the lives of people with HIV.

[tathougies]

> One that private pharma R&D is getting less efficient, creating fewer and fewer drugs per billion dollars

That is because government backed drugs can typically gain approval without as much bureaucratic overhead. When the government experiments on its citizens (like the syphilis experiments, for example), no one is held to account, whereas private companies have to have liability insurance, etc, and do things the proper way. If the government actually enforced its own standards on itself, it's unlikely they would be more efficient.

[hilbert42]

"...studies which point out some interesting large scale trends. One that private pharma R&D is getting less efficient, creating fewer and fewer drugs per billion dollars"

All the more reason for the State to involve itself here by bringing to an end such an expensive,'inefficient' (or more likely self-serving, profit-driven) system. As I've said above, it's the job of Government to protect its citizens from such abuse and in this matter it's high time it started.

[xg15]

According to another comment chain, a large part of pharma R&D is financed through government grants. Wouldn't this already take care of the risk?

[s1artibartfast]

No, because this often repeated trope simply isnt true. Government funding usually is very early in r&d, (think lots of small grants for tens of thousands of dollars which have 1 in a million chance of succes). private industry takes the outputs and spends about 2 billion dollars per sucesscul drug screening and further developing it. It is like saying a large part of web development is government funded because tc/ip came from a government lab

[vonmoltke]

No, because the part the government funds is the exploration and initial testing of compounds. As someone else pointed out, it takes quite a bit of work to get those compounds from "works in a lab" to "available at CVS". Many compounds work in a lab, or work in animals, but fail in humans for various reasons.

[mattkrause]

Academia also isn't a great home for large-scale trials, especially long ones.

Most academic "things" (grants, hiring/promotion/graduation criteria) expect people to produce first-author papers, so projects are usually set up to involve 1-3 people over 1-3 years.

A trial, on the other hand, needs lots of people, ideally at many different sites, and will hopefully produce a single, well-defined outcome. Somebody's also got to make the drug--and under conditions where the end product can be given to humans (i.g., GMP). None of this is cheap either, and the NIH budget wouldn't stretch to too many large Phase III trials.

[narrator]

What if the drug companies are raising prices because of Eroom's Law[1]. They have fewer and fewer blockbuster drugs and are plowing more money into research of diminishing marginal returns. Eventually the returns will be negative if they aren't already. Why aren't there more competitors though? Is there some sort of anti-trust situation going on?

[1]https://en.wikipedia.org/wiki/Eroom's_law

[ip26]

Can you really trust the margins? If they were making a killing, I would expect plenty of creative accounting to hide that fact.

[Excel_Wizard]

If it's a private company (not publicly owned) we have zero ability to know, they would not have to publish any financials.

If it's a public U.S. company we can know with 100% certainty via GAAP accounting.