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One-shot cures for diseases are not great for business—more specifically, they’re bad for longterm profits—Goldman Sachs analysts noted in an April 10 report for biotech clients, first reported by CNBC.
The investment banks’ report, titled “The Genome Revolution,” asks clients the touchy question: “Is curing patients a sustainable business model?” The answer may be “no,” according to follow-up information provided.
[...] The potential to deliver “one shot cures” is one of the most attractive aspects of gene therapy, genetically engineered cell therapy, and gene editing. However, such treatments offer a very different outlook with regard to recurring revenue versus chronic therapies... While this proposition carries tremendous value for patients and society, it could represent a challenge for genome medicine developers looking for sustained cash flow.
[...] Ars reached out to Goldman Sachs, which confirmed the content of the report but declined to comment.
(Score: 0) by Anonymous Coward on Monday April 16 2018, @12:55PM
I completely agree with you about the absurd prices of American drugs and the moral issue with putting profit above superior medical treatment.
I want to talk a bit about the $3B dollars. This perfectly demonstrates how the for profit health care system in the U.S. is flawed. $3B sounds like a lot, but you have to consider the scale of the company. Usually profit refers to gross revenue - cost of revenue. Take that number and subtract payments to creditors, administrative costs not related to product production or logistics, taxes, and preferred stock dividends. What is left over is what ends up as net income for common stock share holders, or the ones with voting rights that collectively own and control the company. Suppose all of this leaves $1.5B left for common stock holders. To make things simple, lets say there are 100M shares of common stock. 1.5B / 100M = $15 per share of common stock. If the price of one share is $300, that is only a 5% return on investment. Now consider assets. $300 * 100M is a $30B market capitalization. Right now, most companies are selling on the stock markets for about 3 times their net assets. This means if the company were to liquidate, you would at BEST, get a 1/3rd of what the current share price is in cash. A 10% return on assets is considered very good. Lets use it for this company. To get $3B gross profit, you would need $30B of total assets. Assuming average numbers, you can see how $3B gross profit might not be anything to call home about when it is applied to a $30B company. Ask yourself this. Would you want to own shares of a company that could be put out of business by regulation, scientific breakthrough, lawsuit, or competitors that gives you 5% return that would liquidate for a best case a 1/3rd of what you paid (realistically 1/6 or 1/8th)? You can get a 4% dividend yield from the Vanguard real estate ETF that owns shares of thousands of office buildings, hotels, apartments, etc around the US. You can get 5.5% in dividends by buying a preferred stock index ETF that owns a few shares of every preferred stock that is representative of the preferred shares market. I'm going to demand a much higher return, much higher liquidation value, or a significant competitive advantage to buy an individual company like this that has the risks of a pharmaceutical company.
Consider the cost and risk of spending huge amounts of money developing medical devices and drugs. In order to attract (sane) investors to fund this development, it has to have the potential for a substantial profit. This is why for profit health care systems are flawed. Once you factor in the profits rightfully demanded by share holders and the overhead that quickly shrinks gross profits, it significantly adds to the cost. No sane investor would buy a company that risks putting itself out of business because the products it sells reduces demand for its own products. It creates a conflict of interest where the most profitable services and treatments are the most widely available. Taxes funding health care has the problem of the incentive of keeping the long term costs as low as possible, regardless of the results. I would like to see a health care system optimized for cost and quality. I don't know what that system would look like, but it isn't what we have now in the U.S., and I have my doubts about U.K. or Canadian style systems being optimal.