Goldman Sachs asks in biotech Report: Is curing patients a sustainable business? (2018)

I feel kinda bad for the writer, because it's a good question: no, curing patients is not a good business model, just like public transit is not a good business model.

What a lot of folks neglect are N+1-order effects, because those are harder to quantify and fail to reach the predetermined decision some executive or board or shareholder has already made. Is curing patients a bad business model? Sure, for the biotech company it is, but those cured patients are far more likely to go on living longer, healthier lives, and in turn contribute additional value to society - which will impact others in ways that may also create additional value. That doesn't even get into the jobs and value created through the R&D process, testing, manufacturing, logistics of delivery, ongoing monitoring, etc. As long as the value created is more than the cost of the treatment, then it's a net-gain for the economy even if it's a net loss for that singular business.

If all you're judging is the first-order impacts on a single business, you're missing the forest for the trees.

Of course it's sustainable. Gilead Sciences is a $155B company originally built on a single drug (Sovaldi) that literally cures Hepatitis C. Now they are more diversified and have a stacked pipeline. The business model just changes to one like oil or mining exploration where you find a deposit with a limited lifespan and you have to keep the treadmill going to find new ones before the mother lode that funds your firm is all tapped out and you go bust.

But while it makes for amazing ragebait and threads full of grievances aired against the healthcare system in general, I think the question isn't very relevant because in Biotech, this is dynamic already essentially forced, cure or not, because of *patent life*. A perfect example of this is Lipitor and Pfizer. Lipitor was not a cure. Statins do not cure you. But it was the most profitable drug of all time. But it eventually went off-patent and now the average price on GoodRX for a 30 day supply is only $6. Pfizer stock has never recovered from that success, though they certainly have a sustainable business.

The modern-day Pfizer is Merck. Merck has probably the most profitable drug in world history (Keytruda) which is far more profitable than Lipitor, and which has massively increased remission rates for a wide range of cancers, so it's somewhat of a cure as well. But that patent life is about to expire, and 46% of Mercks revenue will disappear with it. Of course, new people are diagnosed with cancer every day, and Keytruda will continue to be prescribed in the millions, but Teva and others will sell the generic version and Merck will lose out on the revenue. So the race is on to get more things through their pipeline, acquire some promising assets, and keep the treadmill going. There are 100+ year old mining and oil companies. None are mining the same asset they had one day one, but this doesn't make the industry unsustainable.

Previously:

2018: 448 points, 370 comments https://news.ycombinator.com/item?id=16827248

2021: 104 points, 100 comments https://news.ycombinator.com/item?id=27184116

This reminds me of the new-ish treatments that promise to regrow tooth enamel or prevent the growth of bacteria that causes cavities. These won't get widespread adoption until the American Dental Association or whatever says they're safe/effective, but there's a clear conflict of interest because it would have a huge negative impact on their members' business model.

There's money to be made selling a cure, but the creative destruction that it can bring will mean entrenched interests will fight tooth and nail (pun intended) to delay it.

It doesn’t matter if it is a sustainable business. People will do what they can to maximize their income now. If 10 companies are withholding a cure to milk the patients, any one of them can break from that strategy at any time, with near-instant financial reward and competitive advantage. It is not a stable equilibrium.

Depends on the market. Everyone dies eventually. Every near-fatal illness you suffer is a windfall for the medical system and ensures another windfall later.

For all other businesses, it's a little more complicated. If the patient/employee's knowledge, connections, etc, are valuable enough, then keeping them alive and mentating appropriately is inherently good for the business. The question then is "How do you measure 'enough'?"

That questions belies a misunderstanding of how the pharmaceutical industry works and I'm having a hard time figuring out if the journalist made a mistake or the report was written by someone with little experience in the industry (I haven't read it).

Since we've mostly run out of small molecule drugs, the (vast?) majority of drugs are developed outside the pharmaceutical industry by biotechs funded by VCs and public investors. It's a well understood pipeline now that takes IP from university tech transfer to VC biotech to pre-revenue* IPO with the final exit being an acquisition by a pharmaceutical company, which comes in with the manufacturing infrastructure to take the drug from phase III trials or approval to the mass market. Once a drug is approved (or the phase III is very promising like Sofosbuvir), pharmaceutical companies trip over each other trying to buy the IP. The industry has offloaded most of the scientific risk to VCs and the public while sharing the rewards with those investors.

As long as the number of pharmaceutical companies doesn't drop to oligopoly/cartel levels and capture the regulators completely, the incentives are strong for one pharmaceutical company to buy a cure and take it to market to undercut a competitor's treatment. Even if an oligopoly develops, since there's no "product market fit" risk and zero scientific risk once a drug is approved, financing the purchase is trivial and starting a new pharmaceutical company to compete with the oligopoly is relatively easy. The manufacturing bit is no joke but the amount of money involved even with a single drug makes starting up a new pharmaceutical competitor totally worth it, since the manufacturing and quality control is a well understood engineering problem.

On top of that, it's practically impossible for every pharmaceutical company to have a drug that treats the same thing without a ton of consolidation in the market. Drug approvals often use active-comparators and standard of care controls that raise the bar for each new drug on the market that treats the same thing. A cure on the other hand is essentially just competing against a single golden standard (there are many exceptions but it's a good rule of thumb).

Another factor is pricing. Treatments are generally priced based on how they impact quality of life because that decides how much insurers are willing to pay, especially the big state healthcare providers that have to do hard cost benefit calculations. If a treatment is making bank, the ceiling for what you can charge for a cure is a significant fraction of the lifetime cost of the treatment, and not just based on the QOL impact. It creates a strong incentive for both investors and insurers to get the cure to market.

* If you think unprofitable tech IPOs are bad, most biotechs that IPO do so with zero revenue, let alone profit. Usually to fund clinical trials.

Looks like an old article which has been on HN a few times now. I guess the situation hasn't changed since 2018.

This, in a nutshell, is the problem with for profit medicine. If the training signal is money then money will be optimized.

The problem with investors these days is that too many of them seem so focused on short-term gains and showing their numbers increase quarter-over-quarter that we seem to be incapable of looking at an investment over a longer period of time.

socialized healthcare please and thank you.

(2018)

The suggestions on making sustainable cures:

    “Solution 1: Address large markets: Hemophilia is a $9-10bn WW market (hemophilia A, B), growing at ~6-7% annually.”

    “Solution 2: Address disorders with high incidence: Spinal muscular atrophy (SMA) affects the cells (neurons) in the spinal cord, impacting the ability to walk, eat, or breathe.”

    “Solution 3: Constant innovation and portfolio expansion: There are hundreds of inherited retinal diseases (genetics forms of blindness) … Pace of innovation will also play a role as future programs can offset the declining revenue trajectory of prior assets.”

e.g. Curing blind children is profitable, since there's so many genetic reasons a child would be blind that you can keep introducing new cures reapplying the same technology.