Sure it is. Gilead made 100 billion dollars curring Hep-C with seed research investments that were probably much less than 1 billion.
So as long as this strong differential and potential for profit exists, drug companies feel competitive pressure to produce better treatments, irrespective of the fact that "milking" the pathology would yield them trillions collectively. It's effectively a "tragedy of the commons" of sorts: a single company trying to capture more of the market ruins profits for everybody else by finding a cure; behold, the magic of the free market.
They can only escape it by entering non-compete agreements and collectively agreeing not to inovate, a substantial claim that requires substantial evidence.
Notably, the headline here oversells the actual content.
Goldman is rightly pointing out that gene therapy cures require heavy research but don't provide long term revenue streams.
It doesn't claim that they shouldn't be pursued, or that people should be kept sick. It doesn't even say gene therapy companies offering cures are bad investments! Rather, it points out that they offer high returns over limited durations, and will have to constantly hunt new treatments and target popular diseases. All of which, I note, describes Gilead perfectly.
I think you and Goldman are both right, while the headline writer is misunderstanding the actual memo.
In fact, this is a really common thing we see in the market/government dichotomy: the market doesn't, and shouldn't, have a stomach for long term, high risk plays that could possibly benefit all of society. That's not the point. The government handles those levels of investments on a much longer time scale, allowing the market to exploit the technological platforms made by our government. We see this pattern with the space race, the internet etc.: government does the big heavy lifting in the 20-40 year time frame, then VC and the market comes along and "digests" those changes for the marketplace.
Thanks very much for this - I'm excited for the book, since I've believed the general outline of this concept for a while now.
Despite all the outrage over this memo, all I can really think is "yes, what a great argument for state-sponsored medical R&D." Questioning the profitability of a market doesn't determine the profitability of that market, and if something socially-valuable turns out not to be market-friendly, that's an obvious case for state intervention.
(If someone made me Emperor, I'd probably pick a deregulated, free-market approach but increase state research spending by an order of magnitude.)
It would still require that the company that develops the cure could make more profit off it than it would make with chronic treatments.
So if you went purely for profit, you could only develop a cure if:
- you could price it higher than the price of the chronic therapy over the full lifetime of a patient.
or
- you could sell it to more patients than you could have sold the chronic treatment. A lot more, because every patient will only buy the cure once.
So even then the incentives would probably lead do driving the price of drugs up significantly. You'd also still have no incentive to actually eradicate a disease.
- you control only a fraction of the ongoing-treatment market, and the windfall you could get as a monopolist in the short-lived cure market is worth losing out on that steady cash flow
On the one hand you have a company who's business model depends on milking patients on chronic treatments. On the other hand you have a company that is able to develop a permanent cures for that disease. Guess which company is a threat to which company (hint: if there are no longer sick patients to milk you no longer have a business model).
Drug development is really hard - the odds are stacked against you.
Any successful drug with half a business case will be launched - no company can afford to be picky about cure vs. chronic treatment - there just aren't that many successful drug discoveries to enable it.
It would still require that the company that develops the cure could make more profit off it than it would make with chronic treatments.
No it doesn't. Why? Because there are multiple companies.
If company X is making $10B per year on a poor treatment, there is still an incentive for another company to create a cure, even if it only makes them $1B.
They solve this by working on diseases whose diagnostic criteria are vague enough that they can never be fully cured. Or at least no physician will ever tell someone they're "cured." Diabetes, hypertension, heart disease, autoimmune...
Is it just me or does anyone else think that "tragedy of the commons" is overused as an explanation?
While I'm at it. Also overused (not as an explanation) but just as an expression is, "onboarding".
Also, "Dunning-Kruger effect"
Sorry for veering off-topic but I was triggered.
I imagine a HN Bingo app game where each player is randomly assigned HN-y phrases and expressions from a fixed database at the start of the day. As the day progresses the app monitors comments of posts on the front page for matches. First to get a line is the winner!
Incidentally I agree with the commenter @cornholio, curing the unwell is incentive enough as there is plenty of profit to made and to live means to suffer from ill health at some point in one's life. As you were…
So as long as this strong differential and potential for profit exists, drug companies feel competitive pressure to produce better treatments, irrespective of the fact that "milking" the pathology would yield them trillions collectively. It's effectively a "tragedy of the commons" of sorts: a single company trying to capture more of the market ruins profits for everybody else by finding a cure; behold, the magic of the free market.
They can only escape it by entering non-compete agreements and collectively agreeing not to inovate, a substantial claim that requires substantial evidence.