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Comment by rob-olmos | Hacker News Reader

Out of curiosity, why do you feel (a) is not the case? Are the profits going to salaries instead?

There is a certain management metric called "profit per employee" used for managerial accounting. Many ordinary business' have a fairly low number. Apple Inc at one point made a very public version of their "profit per employee" and perhaps that influenced/emboldened others.. at any rate, the drug discovery and pharma industries have very high "profit per employee" numbers which you can find in some annual reports and some industry analysis papers.

The software industry has high per-employee profit too, that’s the leverage that pays the high salaries in the first place.

None of that has to do with this company or the profits not funding new research.

I think he reasons that a drug so old would have no debt left over from its research expenses.

Imagine if we applied this rule to Silicon Valley. Once you recouped your R&D expenses, you weren't allowed to make any more money (or only a token profit above cost). Do you think Silicon Valley would be the same? Better? Worse?

(Yes, people don't die if they don't have Facebook. That's not relevant to the R&D process. The mechanics of developing pharmaceuticals is the same as developing software. You take large amounts of capital and throw it at highly skilled and scarce labor.)

EDIT: That does not mean there are no problems. There's lots of real problems, such attempts to keep things from going out of patent, how to handle orphan drugs and drugs for rare diseases, etc. My point is simply that we have proven principles for how to enable innovation, and they apply to pharmaceuticals as much as to web tech. Of course, we can make different trade-offs within that analytical framework--e.g. trade future innovation for lower short-term costs. But we can't apply a wholly different set of principles for thinking about the costs of those trade-offs.

One difference is that there is often plenty of competition, sometimes from open source software. The big tech companies give lots of stuff away for free.

These markets don't seem much alike.

> The big tech companies give lots of stuff away for free.

I'd like you to think about that for a bit and then tell me if you can say it again with a straight face.

Do you really think "for free" is what people are being sold? People are being sold to advertisers. That's definitely not free in my book.

The advertisers paid for advertising. No money changed hands with consumers. That's the normal definition of "free."

You might not like it when someone records your behavior, and there might eventually be other bad consequences. I'm not saying it's a good thing. Free stuff can be bad for you.

But you didn't pay for it.

> But you didn't pay for it.

You're trying to argue that someone who made a simple trade (for example a chicken for some wool), didn't pay for what they received.

I did pay for it. The payment was in in knowledge about how I would use the service and making my time available for an advertiser to take my attention. The payment was in the ability of Google to read my private correspondence.

I think it's unethically misleadingly wrong to say people don't pay for a free service.

If you walk into a shop and ask how much a newspaper costs, and they tell you it's free, they're not being misleading, even though it's paid for by advertising. It would be confusing if you asked if it was free and they said no.

Pestering people who use the word "free" in the normal way has nothing to do with ethics, it's just being annoying.

When you pick up a newspaper, the advertisement was already sold.

When you look at a website with an online advertiser such as Google, the advertisement is _not_ already sold. Your information is put on a marketplace to set a price for your attention and device's resources.

There's a very significant asymmetry to what is being sold when comparing the two scenarios.

Imagine a piece of software that had fully recouped it's R&D budget, had minimal support costs, and was sold for a modest profit suddenly went up 100x in price.

This happens all the time. You don't notice it because you're not directly billed for it, but basically the central theme of the startup playbook is to subsidize growth, acquire a userbase, and then (and only then) monetize the hell out if it.

What you're describing is the early cycle of a Drug before R&D is recouped. We're talking late stage after all the initial VCs have recovered their investment 10x and divested themselves.

We're not talking about Uber after successfully running Taxis out of business jacking up prices. We're talking about 25-30 years later after Uber has been the de-facto transportation provider suddenly decides to do a 1000x price increase.

I'm responding to (really, refuting) a specific argument you made upthread. You can now make a different argument, if you like, but I won't necessarily have much to say about it.

A lot of startup products go from free to monetized (an infinity x increase in price) at some point.

We're talking about a drug that's going on 50 years on the market, not a startup. The drug has already been monetized and paid for itself 100x times over.

Nothing wrong with going until 200x. Cost != affordability. It's a misdirection of the real issues with the medical industry.

Bell Labs was funded by a monopoly.

I guess another interesting question is "Does the fact that companies are more shareholder-friendly now increase or decrease innovation?" (that is to say friendly, in the sense of returning a larger portion of earning to shareholders via stock buyback or dividends)

I'd argue it seems to have decreased it, but I'm hard pressed to come up with a reason why.

The closest I could offer would be that retained earnings fund capital investments and corporate-managed R&D. Whereas distributed earning fund... investors.

Which is the point, but this far investors don't seem very interested in funding long-term research.

The list of things we've gotten in the last 20 years of shareholder-friendly innovation seems like a strong rebuttal to that argument. 20 years ago it was amazing to think that I could get on the Internet from any room in my own house without plugging an ethernet cable in; today, I can run a 10 person videoconference on my phone, which also holds every song I could possibly care to listen to or have ever really cared to listen to, along with every book, from the bus stop.

In tech, sure. But there's also a huge chunk of innovation driven by open source. If Google had standardized on MS Windows instead of Linux, then MS would still be at the top of the heap.

The barrier for entry to tech is very low for technology, which means that competition is also higher, which then drives more innovation.

With pharma there is a cash outlay required to research and manufacture a drug, even if it's off patent. Software just needs a computer and time.

The problem With this tech vs pharma argument seems to be the comparison of two sectors which aren't apparently the same at all.

The fact that Chrome is monetized by plugging into Google's ad network instead of charging users per copy isn't a difference in how Chrome is developed. For the most prominent open source projects, the basic development model is still throwing corporate money at very expensive engineers. That's true for Linux itself--for a long time, the vast majority of contributions have been from corporate sponsors.

I should have said shareholder-primacy vs -friendly.

I was specifically referring to the change in the 70s and 80s from a diversity of stakeholders being valued to shareholders above all other considerations.

It seems fair to argue that the much-maligned dual stock schemes popularized by tech companies is a reaction to and repudiation of this.

Zuckerberg being able to spend money better than Facebook's shareholders, etc.

And I don't think it's a clear-cut decision on whether shareholder-primacy or balanced-management has produced "better" for-profit companies.

In a competitive market, profit is naturally driven towards zero. Drugs are not a competitive market, every one is a little monopoly of its own.

That used to be how it was not too long ago. You sold your software or hardware at a one time price and customers either got the product or a serial key. Now even hardware sometimes falls under subscribe till you die.

isn't that the idea of a free market? Proper competition should eat almost all of your profits

Silicon Valley is always into R&D, tech quickly looses it value as new tech is developed. I don't think it would effect Silicon Valley in a negative way, it would only further push innovation.

So a company can’t invest profits from old products into new products? Is there a cutoff? What is the rationale behind this?

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