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PHARMA: A riposte to my crack about pharma, software and auto R&D, by Terry Nugent

Terry Nugent, who’s a frequent contributor to the Pharma-Marketing list serv was not too impressed by my recent post about Cato and how pharma companies might have to live in a world where their margins were much smaller but they still had to do real research: He writes:

Ironically, Cato has hoisted the industry on the Republican free trade petard. However, there are a few caveats to your comparison to the high tech and auto industries. In the case of the former, copyright protection is a powerful moat to competition (e.g., Microsoft: there’s no generic Windows to separate Bill Gates from our $50 billion). In the latter instance, what’s missing is profits (as evidenced by the dismal PE ratios of auto stocks). The automobile business market is almost as unsustainable as the airlines’.

Unrestricted reimportation has some substantial downsides, including the inevitable counterfeiting that has already come to light to an extent that surprised even industry friends and allies. The pharmaceutical industry is probably the best generator of the high wage, high tech jobs its critics claim to champion, which reimportation will in effect outsource.

Profit diminution will inevitably reduce investment capital in what is a notoriously risky business. Already, pharma PE ratios are lower than their historical levels due to shortened patent windows, litigation exposure, and a clear and growing public policy hostility that amazingly lumps the cure with the cause by putting big pharma in the same docket as big tobacco, hounded by the dogs of demagoguery and the trial bar.

Prices may go down, but at what price to our progeny, much less ourselves? Our unborn children will be the ones to suffer from the absence of undiscovered drugs, aborted by the shortsighted "savings" that are the price of populist politicians’ purchase of power.

Believe it or not I’m not entirely unsympathetic to the pharmas on this issue. They live in an odd industry, where production costs are low and market entry is relatively cheap once the IP is known and exposed (unlike autos), installed bases don’t count for much (unlike operating systems) and where they do only have a few years to make the huge profits before those revenues go away (a la Claritin whose demise almost destroyed Schering Plough). But over the last decade the bigger pharmas via mergers have become more like other corporations that have the diversity to survive the disappearance of one product line or another. And their profitability is such that it can’t go up much more, and their sales and marketing expenses can certainly come down. And like it or lump it that will have to happen, lest they provoke that excessive demagoguery that Terry fears or worse that intervention from populist politicians.

And I tried to promise Terry that I wouldn’t mention the fact that the auto manufacturer’s profits would be much higher if they were paying Canadian prices for their employees’ drugs. But I failed!

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This is the blog were you can get all the information on the Health care.According to me the last decade the bigger pharmas via mergers have become more like other corporations that have the diversity to survive the disappearance of one product line or another. And their profitability is such that it can’t go up much more, and their sales and marketing expenses can certainly come down.Its an great idea for marketing this products.
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