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Pharmaceutical Industry Bailout

Still doubting the dirty relationship between government and big pharma?  The Obama administration settles these doubts with the creation of the National Center for Advancing Translational Sciences, a billion-dollar government-funded center to help create pharmaceutical drugs and then turn the research over for big pharma to collect the profits. 


"The drug industry’s research productivity has been declining for 15 years, and it certainly doesn’t show any signs of turning upward,” said Dr. Francis S. Collins, director of the NIH.  This is no surprise, as drug companies have typically spent twice as much on marketing as on research.  What is shocking is the "solution": The government now will not only conduct the basic research for drugs, as has increasingly been the case through NIH and other academic funding, but has created a new center devoted to developing pharmaceutical products to simply hand over to private Big Pharma to market and profit from.  “None of this is intended to be competitive with the private sector,” Dr. Collins said. “The hope would be that any project that reaches the point of commercial appeal would be moved out of the academic support line and into the private sector." 


If pharmaceutical companies are not going to invest the research to invent the drugs, then there is absolutely no market, or consumer focused argument to be made for granting them monopoly protections on these drugs.  Treat them for what they are:  manufacturing and distribution centers, and allow free competition to drive prices down.

Additionally, there is an income effect similar to stadium subsidies.  If government subsidies alleviate a business from spending its revenue stream on its core mission, in this case developing drugs, then there is more revenue leftover to pour into supernormal profits and executive salaries, especially under the anti-competitive protections of monopoly patents.  You can draw a direct link from government funding to CEO pay and profit margins.


Welcome to the new sort of bailout... government-funded handouts for an industry that:


  Spends less on R&D than goes into profits. In 1999, the top five pharmaceutical companies (ranked by sales) all allocated a higher proportion of their revenue to net income than to R&D.3

  Spends $11 billion annually on advertising and marketing.4

  Makes $26.2 billion annually in profits.5

  Has a profit margin of 28.7 percent, nearly three times higher than the profit margin of other manufacturers of branded consumer goods.6

  Ranks #1 inprofits among all industries on all measures: return on revenues, assets, and equity.5