Thank you for moving my post to a separate thread. But I have to say, I fundamentally disagree with any model of fixing the price of medical treatment according to the ability to pay (GDP or average income). This is exactly what Gilead are doing, and by taking it to its extreme they are literally getting away with murder.
Sure, prices should be "fixed downwards" according to ability to pay in poor countries, but not "fixed upwards" according to ability to pay in rich countries.
So just for fun (or maybe not), here is some simple number crunching based on Gilead's sales figures and the definition of profit margins...
In most businesses, it is quite reasonable for a company to have a profit margin of from 5 to 10%. For supermarkets, it is typically 5% or less. For specialist engineering it is around 10%. For banks, it is about 18%
Well, everyone knows that the banks rip every one off - left, right and centre... But let's not get into that
My target here is Gilead. Their profit margin is reported to be a whopping 45%
So what is profit margin anyway? It is the ratio of net income (gross income after deduction of expenses) over gross income.
So if Gilead are charging $40 000 per treatment (after government or health-insurance negotiated discounts on the famous $1000 per pill "list price") for something that in reality costs less than $1000 to make, why is their profit margin "only" 45% and not more like 4000% ???
We can only suppose it is because they are either COOKING THE BOOKS or they have MASSIVE expenses (or both). But since Gilead is operating legally within US and international law, and apart from a few tax dodges like operating out of Ireland, they cannot be cooking the books... Right?
But hang on, Gilead paid $7 billion to Pharmasset to get the patent for sofosbuvir, didn't they? Sure, that is a MASSIVE expense. Obviously, they have to make that back, and some, in order to make a decent profit? Right! But Gilead reported $18 billion Harvoni sales in 2014 in the USA alone plus $5 billion in europe alone. In 2015, it reported $21 billion (USA alone) and $7 billion for europe:
So just for a quick estimate, and ignoring 2016, in these two years we are looking at Gilead profit margin = (18+5+21+7-7-X))/(18+5+21+7), where X = all other expenses. So if you do the math to find X with profit margin = 45%, you get 44-X = 51*0.45, or X = $21 billion for "other expenses".
OK, this is probably not very fair to Gilead. Lets Say Gilead spend $1 billion on Clinical Trials and $1 billion on staff salaries during the period. These are fair expenses? So now we get 44-2-X = 51*0.5, or roughly X = 42-51*0.45 = $19 BILLION for "other expenses". In other words,
IN 2014 and 2015, GILEAD MUST HAVE SPENT SOMETHING IN THE REGION OF $19 BILLION USD TO CARRY OUT ITS BUSINESS OF SELLING SOFOSBUVIR IN THE USA AND EUROPE.
Just think about that for a minute...?
So where did all this money go? If we believe the published sales figures and profit margin, and because compared to such big numbers, the COST OF PRODUCTION IS ALMOST NEGLIGIBLE, this must mean that
IN 2014 and 2015 GILEAD PROBABLY SPENT IN THE REGION OF $19 BILLION IN LEGAL, LOBBYING MARKETING, and "OTHER" COSTS.
Well, I'm not an accountant and this is just simple math. Probably I am out by a few billion.
But unless my simple math is completely wrong, surely this means something is fundamentally wrong with the pharmaceutical business?