Here’s a thought experiment. What if we think about drugs like any other commercial product? Then a drug company, like any other company, should simply be viewed as a machine geared towards making money. If it doesn’t make money by selling its product for dollars, it has no commercial right to exist.

There are two types of products that make money. A product that moves high volume, or a product with a high margin of return. In terms of drugs, this really means two things – a very common illness, or a life-threatening one. It is either something as common cold or a nasty one like AIDS or cancer. By the fact that the common cold is common, it means that’s it’s incurable, and profit is made by its ubiquitous recurrence. The nasty high-margin one is due to the life-threatening aspect. Death is a wonderful focus to buy a product.

The best products are the ones with a high margin of profit. Low margins of profits won’t bring you a lot of money. That means an expensive drug. What makes a drug expensive? They could be expensive to make, which makes them rare. However, there is another way to push up the price of a product.

Take for example, sneakers. It is a pretty well-known fact that the cost of an expensive pair of sneakers is not due to the manufacturing cost. By marketing a pair of shoes as a luxury item, the price can be marked-up. And if marketed properly, the luxury price of a drug will pay for the marketing and make a tidy profit on top of the cost of marketing. This is the NIKE approach. Take a cheap product and market the shit out of it so that you can sell it as a premium product. Put hot sexy women on billboards, in magazine adds. Make them sing songs. Like NIKE, drug companies spend twice as much on marketing as it does on research. An army of hot young drug reps are needed to push drugs in the corridor of every hospital

Well how do we make a drug into luxury item? Well drugs are not like gold watches, or swedish cars. They are much much easier to make desirable. Basically, the more severe that the drug is aimed to alleviate, the more it is desired. If the disease terminal then you hit pay-dirt. People desire these drugs as much if not more than the latest iPod. This is an excellent marketing leverage point for increasing profit margins.

The opposite is also true. Low margin products are not desirable. If you can’t mark up the profit margin, or market it in such a way that a prestige mark-up can be applied then it won’t be very profitable. For instance, generic drugs earn low margins. Unlike on-patent drugs, which you can market like a luxury item, selling generics is more like a commodity market. Competing in a commodity market is hard work. As advertising doesn’t make much of a dent in commodities, the only way to make money is to manufacture the product cheaper. Potential profits are miniscule and not worth the effort. Best to avoid that market altogether rather than waste precious capital.

Another maxim from business is that it’s the blades that make the money, not the razor. A product that sells once is not nearly as profit as the product that makes you come back again. Therefore vaccines are not profitable. You take it then you are immune from the disease. How are you going to pay more? Vaccines are not very profitable at all. Unless it’s a vaccine that you have take again and again.

And what if you actually have a disease? The drug that actually cures the disease is not very profitable. How can you possibly leverage a revenue stream out of that? No, the best drugs are the ones that alleviate the disease to a certain point, but does not cure it. Then the customer has to come back for more. Like crack. Crack sells itself, and makes the customer come back for more. When it’s addictive to boot, you don’t even have to market the shit. Those smartly dressed men who work out in chrome-finished gyms in Palo Alto, and attend seminars in San Diego, are nothing more than very advanced version of a crack dealer cruising in a Chevrolet on the edge of Oakland. Same ball-park, different stand.

The perfect drug is not a cheap vaccine that saves life threatening disease for very poor people. No the perfect drug is an expensive, patent-controlled, drug for a life-threatening disease that targets rich people that alleviates symptoms periodically but does not cure it. Then you’d throw you marketing department at doctors so that you can lift its street price as high as the market can bear.

But like a drug dealer, the average CEO of a large drug company has image problems in terms of “community outreach”. So you’ll see them toss a bone to the way of the community by funding an occasional cheap drug or a loss-leader. But their hearts and wallets are really not into it. Oh, but you ask, where is the humanity, the compassion in these good doctors of science? Ask yourself this: would the typical CEO of a drug company prefer to make a feature article in National Geographic on the “Third World” issue or make the front cover of Forbes?