Of course the big pharmaceuticals have "fat" profit margins. As I stated, however, the fat profit margins largely come from the U.S. Market, not from Europe and Canada.
% margin is not a useful measure of a company's profitability as a business. A better measure is return on capital employed, and by that measure, the Pharmas aren't doing as well. For example, Pfizer has 117 Billion in assets and made 3.9 billion in earnings in 2003. That sucks by any comparison. As an business person, I wouldn't take the risk of developing new drugs for a 4% ROC. Merck, with the highest gross margins, had 16% ROC over the last 4 years. Again, a tarsands plant gives similar return with much less risk.
As I see it, if the U.S. were to find a way to cut drug prices to that of Canada and Europe, Big Pharma would have to cut employed capital - simple as that. Without the U.S. providing those fat margins, the rest of the world wouldn't get as many drugs.
In fact, Big Pharma have already greatly cut back on drug development in favour of letting independent biotechs take the risks. Since the return on developing new drugs is uncertain, the big pharmas are deciding to cut their research and book the cash flow as profits.
Don't take my word for it, though. There are much more knowledgeable people on the biotech valuation thread.
-g |
