Look at any commodity market, with no barriers to entry, no IP protection, thin margins, say: making bread. The logic that everybody will stop making bread because there's more money to be made in making iPads is false.
The general rule is: as long as there is money to be made, people will compete for this money.
There's a lot of money to be made in drugs and as long as it's true, companies will compete for this money, even if the margins won't be as great as they are today.
The $12bn is a lot of wiggle room and twice the amount they spend on R&D. They are making profits hand over fist.
The $7bn total spent on R&D also puts your $1bn per drug into question - does the biggest pharma company can only do 7 new drugs per year (and I'm really generous in assuming all of that R&D goes into developing new drugs)?
I don't get the comparison to commodity markets or markets for commonplace things like bread. There aren't any high barriers to entry in bread business, it doesn't require a lot of specialized skill or R&D, and consequently there is not a lot of room for profit.
Pharmaceuticals involve high liability, high costs, and highly skilled workers at least in the R&D area. I'm not sure whether the "net income" (it doesn't say profit) listed on that wikipedia page is net of R&D and net of taxes. Actual profit might be much smaller than it appears; if R&D is not included then the top firm has a profit of 8% and that may not include taxes. If they are only able to make bread-bakers profits they might as well just make bread and avoid all the hassle.
Look at any commodity market, with no barriers to entry, no IP protection, thin margins, say: making bread. The logic that everybody will stop making bread because there's more money to be made in making iPads is false.
The general rule is: as long as there is money to be made, people will compete for this money.
There's a lot of money to be made in drugs and as long as it's true, companies will compete for this money, even if the margins won't be as great as they are today.
Look at http://en.wikipedia.org/wiki/List_of_pharmaceutical_companie...: the top pharma company makes $12bn profit on $62bn of revenue with $7bn spent on R&D.
The $12bn is a lot of wiggle room and twice the amount they spend on R&D. They are making profits hand over fist.
The $7bn total spent on R&D also puts your $1bn per drug into question - does the biggest pharma company can only do 7 new drugs per year (and I'm really generous in assuming all of that R&D goes into developing new drugs)?