It really is not that simple in real life. That's a decent write-up of how advertising is supposed to work for your disruptive yet novel startup, but pharmaceuticals is a more complicated animal.

Drugs are things that people "need". If no drug companies advertised, people would still go to their doctors with problems, and doctors would still prescribe medication when necessary (you have some degree of advertising prompting doctor visits, but for the important stuff, and in a system where people are not afraid of the monetary cost of going to a doctor, they'll be going anyway).

However currently all drug manufacturers must advertise their products because their competitors advertise their competing products. Anyone who doesn't advertise will be left behind as patients request the drug that they saw on TV. No company wants to be the company that doesn't advertise.

Advertising makes advertising necessary. It's a sort of "Advertising Prisoners Dilemma": http://en.wikipedia.org/wiki/Prisoner's_dilemma#In_economics

One way to break this is to create laws that forbid advertising. Another is to allow the formation of cartels.

Or they'd be making drugs that actually matter, instead of drugs they can market well to unassuming consumers.

Well, they're picking the drugs that they can sell the most of -- i.e. the ones that will benefit the most people. That's not a bad thing.

However, the cost of human trials are still a problem. Because of the costs, drug research to treat rare diseases aren't going to get funded by anyone.

The last time I got an Rx, the doctor actually made the decision along with my insurance company (at least how much they'd pay).

So you're saying that drug advertising is pulling the wool over the eyes of the entire industry so that they give patients nothing more than placebos?

Most drugs, even those that offer a benefit over current therapies, don't sell themselves. Physicians need to learn about new drugs, have an opportunity to try them before you ever see widespread use.