yes, my accounting faux pa; however, the point I was trying to make is that without profits, you can not expect high R&D input. You have argued that R&D costs in excess of profits are the hallmark of many American companies. I have been reviewing dozens of the S&P 500 companies (which account for the vast majority of profits in the country), and have yet to find a single one which fulfills your criteria of great companies. Thus, while it is technically feasible to accomplish, the vast majority fall short of your criteria. The ratio of R&D to Selling General and Administrative, as well as the quantity of net income applicable to common seems fairly routine, compared to all the other S&P 500 companies, which I have so far examined. Therefore, to conclude that there is something nefarious about the pharmaceutical industry is a specious argument, from a finacial point of view.
Why then the outsized profits earlier in the decade? You have already provided the answer, in R&D. The way any and all industries operate is through, first, linear gains in efficiency and productivity, followed occasionally by discontinuous advances in technology that are transformative. The pharmaceutical industry underwent a radical change in the late 1980's, when it began to more fully understand the fundamental mechanisms of cellular biology. The industry moved away from random screening of compounds in a whole animal model, towards a more systematic mode of utilizing feedback from relevant cellular models. This greatly facilitated the efficiency of the entire industry, simultaneously. This last point speaks to another one of your complaints about the pharmaceutical industry; namely the "me-too" drug phenomenon (which I will address further at a later time). The result of this discontinuous advance in technology gave us a generation of advances in medicinal intervention that resulted in seemingly outsized profits; just as advances in oil exploration (ie utilizing magnetic waves to increase the success ratio of wells being sunk) resulted in outsized profitability for those companies. This is the nature of Capitalism. And, if you don't believe me, you can read Joseph Schumpeter.
PS Please provide a list of great American companies which spend more on R&D, yet generate high levels of profits, so that I can participate through stock ownership. I'm serious. Thanks. |
