frugi
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Here is an letter which I am using to try and think correctly (with little success).
I noticed a couple of immediate points:
a. Investors do not "put money into" established drug companies as they are buying shares in the secondary market. A company receives money only when it issues shares, not every time they are bought or sold! So even if people dump Glaxo in their thousands, this only affects the share price and to a certain extent their public prestige. The research money after the first issue must come from profits, surely (barring a new issue)?
b. In the case of a company that pays a small dividend such as GSK, if the price plummets on account of cheap competition then at some point the rising yield will attract new income investors, unless the prospects for GSK are so dire that they are likely to go bust.
c. I understand his point that if there is no big profit to be made for new drugs (thanks to the ability of "leech" companies to circumvent copyright law and knock out someone else's new recipe) then a single company won't bother wasting large amounts of capital researching them. In the case of IPOs nobody is likely to fund a single company for this reason.
d. But if "investors go away" where might they end up? Perhaps investing in a basket of companies that use Shaunak and Brocchini's copyright workaround to produce cheap drugs. These companies will have neglibible research costs and a ready supply of customers. However they will be selling the drug cheaply due to the competition. Perhaps this cost / profit will be balanced out by the market, perhaps with the result that it will eventually benefit every company to do a small amount of research?
So will money move from the previous omnipotent patent holders to those able to circumvent it until some sort of equilbrium ensues?
e. I can't work out how future research will be affected. Surely people will still do it as a new wonder drug is likely to be very popular, even if the profits have to be shared around all the companies who can make it. If it is cheap there are potential new buyers who would be able to afford it, ones who currently cannot afford them from the likes of Glaxo. So there's a huge potential volume benfit there.
Perhaps a cartel would emerge, with each company providing a portion of the research funding on the understanding that they will all sell equal amounts of any drug they communally invent? Nah that sounds a bit idealistic.
Either way I don't see the need for the government to provide funding - instinctively I feel the market will sort that out - but I may be missing a vital point and cannot explain the mechanism or process by which this would happen.
A final point - if as he says "drug users, governments and insurance companies" will save money as they buy these cheaper drugs then they will have exactly that amount saved available to spend on research. If they do so the cost benefit situation would remain the same.
Now ... more importantly ... why does popcorn cost so much at the cinema?
*scurries off for refresher course on price discrimination*
I noticed a couple of immediate points:
a. Investors do not "put money into" established drug companies as they are buying shares in the secondary market. A company receives money only when it issues shares, not every time they are bought or sold! So even if people dump Glaxo in their thousands, this only affects the share price and to a certain extent their public prestige. The research money after the first issue must come from profits, surely (barring a new issue)?
b. In the case of a company that pays a small dividend such as GSK, if the price plummets on account of cheap competition then at some point the rising yield will attract new income investors, unless the prospects for GSK are so dire that they are likely to go bust.
c. I understand his point that if there is no big profit to be made for new drugs (thanks to the ability of "leech" companies to circumvent copyright law and knock out someone else's new recipe) then a single company won't bother wasting large amounts of capital researching them. In the case of IPOs nobody is likely to fund a single company for this reason.
d. But if "investors go away" where might they end up? Perhaps investing in a basket of companies that use Shaunak and Brocchini's copyright workaround to produce cheap drugs. These companies will have neglibible research costs and a ready supply of customers. However they will be selling the drug cheaply due to the competition. Perhaps this cost / profit will be balanced out by the market, perhaps with the result that it will eventually benefit every company to do a small amount of research?
So will money move from the previous omnipotent patent holders to those able to circumvent it until some sort of equilbrium ensues?
e. I can't work out how future research will be affected. Surely people will still do it as a new wonder drug is likely to be very popular, even if the profits have to be shared around all the companies who can make it. If it is cheap there are potential new buyers who would be able to afford it, ones who currently cannot afford them from the likes of Glaxo. So there's a huge potential volume benfit there.
Perhaps a cartel would emerge, with each company providing a portion of the research funding on the understanding that they will all sell equal amounts of any drug they communally invent? Nah that sounds a bit idealistic.
Either way I don't see the need for the government to provide funding - instinctively I feel the market will sort that out - but I may be missing a vital point and cannot explain the mechanism or process by which this would happen.
A final point - if as he says "drug users, governments and insurance companies" will save money as they buy these cheaper drugs then they will have exactly that amount saved available to spend on research. If they do so the cost benefit situation would remain the same.
Now ... more importantly ... why does popcorn cost so much at the cinema?
*scurries off for refresher course on price discrimination*
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