A Cure Is More Profitable than a Treatment

A stock argument against a free market in medicine is that markets rarely provide cures to chronic diseases because it's more profitable to sell pills that merely treat the symptoms of a disease, giving you a customer for life, than to sell a single course of pills that cures the disease.

The obvious flaw in this argument is that people will pay much more for a month-long course of pills that cures a chronic disease than for a month-long course of pills that does nothing but suppress the symptoms for a month. In fact, the price a patient should be willing to pay for the cure is equal to the expected net present cost of paying for the non-cure treatment for the rest of his life, plus the value of not having to deal with any symptoms not suppressed by the treatment. Granted, not everyone has that much cash on hand, but that's what insurance is for. So it should actually be more profitable to provide a cure than to provide a treatment, especially when you take into account the fact that many fewer pills need be manufactured and distributed.

Apparently those who make this argument believe that pharmaceuticals are sold at a fixed per-pill rate which cannot be deviated from. There may actually be some truth to this. If Pfizer were to develop a drug that could cure diabetes, I wouldn't at all be surprised if the government were to lean very hard on them not to charge more than a fraction of the true value of the drug. But that's hardly a flaw in the free-market system.

Of course, all this assumes that selling patients expensive treatments for the rest of their lives is actually an option. Under US patent law, it isn't. Drug patents last 20 years, and the clock starts ticking long before the drug gets FDA approval. By the time a drug reaches the market, it may have only ten years of patent protection left, so it's very much in the company's interest to extract as much profit from it as possible. The best way to do this is with a cure.

So why do we have treatments but not cures for so many diseases? Because it's easier to synthesize insulin than it is to fix a damaged pancreas. Because it's easier to slow the growth of a tumor than it is to destroy it. Some diseases are just easier to treat than to cure.

Besides, if socialism is better at providing cures than capitalism, what cures have the socialized health care systems of Europe given us?

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Not just medicine

Great post. You hear this same argument in other areas of the economy too, not just medicine. My favorite is the conspiracy theories about how GE and all the rest supress light bulbs that last forever so we have to keep buying their crappy bulbs. As if I wouldn't pay a premium to not have to ever change a light bulb again.

How refreshing

I agree with Curunir - great post. Clear and sensible posts like this that correct common confusions are one of the reasons I am drawn to sites like this.

The reason we don't have

The reason we don't have cures is because the government will not allow us to experiment on ourselves or to choose what we consume for relief or to choose whom to treat ourselves.

Even if I waive all liability will the government allow a drug company to sell me unproven (but I believe likely) to help with me terminal illness? NO!

Will the government punish me if I take unapproved drugs (especially if I'm vocal about it)? You bet!

Will the government punish me (or you) if I ask you (an "unlicensed" person) for treatment? Of course.

Look no further than the government for ALL the medical, social, and financial ills.

You are wrong

The obvious flaw in this argument is that people will pay much more for a month-long course of pills that cures a chronic disease than for a month-long course of pills that does nothing but suppress the symptoms for a month. In fact, the price a patient should be willing to pay for the cure is equal to the expected net present cost of paying for the non-cure treatment for the rest of his life, plus the value of not having to deal with any symptoms not suppressed by the treatment.

Of course they will pay much more, but costs get out of hand pretty quickly. Let us say you have HIV, and a cure is announced today, at a price of 50M$. Everyone with HIV is of course willing to pay that sum. The ROI is infinite, because we only have one life, and if you die it is game over. Everyone is willing, but very few are able to pay the price. So no sale for the drug company with the cure.

To give a different example, why do you think that you can buy a car in 60 monthly installments? Because a lot of people can't pay the whole price up front. So the company instead of no sale, it sells, and you end paying more for it. Ie even greater profit for the company.

By the time a drug reaches the market, it may have only ten years of patent protection left, so it's very much in the company's interest to extract as much profit from it as possible. The best way to do this is with a cure.

Bzzt. Wrong. The best way is to sell the treatment, and just as the patents expire, put the new improved treatment on the market. You know, the one you developed 10 years ago, but kept secret waiting for this magical moment of profit maximization. Rinse and repeat, ad infinitum.

So why do we have treatments but not cures for so many diseases? Because it's easier to synthesize insulin than it is to fix a damaged pancreas. Because it's easier to slow the growth of a tumor than it is to destroy it. Some diseases are just easier to treat than to cure.

I am sorry, but I don't recognize your name. Are you the serial Nobel prize winner in all serious diseases (TM) ? Because making arguments out of thin air, is not very persuasive, you know.

You know, capitalism is interested in only one think. Profit. It is good at that. But you should eventually understand the difference between "profit" and other words, like "health", "environment", "justice", "freedom" (not only in economic action), etc, etc. The profit motive may sometimes lead to some of those other words, but that is just a happy coincidence. And if profit is explicitly weighted against anything else, it wins hands down every time. So please think a little bit more about your "free market saves all" dogma. It is so naive, that it isn't even funny.

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Suspect analogy

Of course they will pay much more, but costs get out of hand pretty
quickly. Let us say you have HIV, and a cure is announced today, at a
price of 50M$. Everyone with HIV is of course willing
to pay that sum. The ROI is infinite, because we only have one life,
and if you die it is game over. Everyone is willing, but very few are able to pay the price. So no sale for the drug company with the cure.

To give a different example, why do you think that you can buy a car
in 60 monthly installments? Because a lot of people can't pay the whole
price up front. So the company instead of no sale, it sells, and you end paying more for it. Ie even greater profit for the company.

This analogy proves exactly the opposite of what you apparently think it does. Namely, there does in fact exist financing for large capital expenditures. If there were a cure for HIV and it was extremely expensive, there'd be a market in financing (sort of like student loans), and the pharmaceutical companies would make a huge profit (that's a good thing).

For your analogy to work, the car companies would have to be only selling month-to-month rentals for transportation. But they don't. They sell cars which people either buy or finance. Same as would be for cures.

There's also a buried problem in your pricing model. Why do you suspect that firms woud charge $50MM if no one can pay it? I realize everyone loves to kvetch about the price of pharmaceuticals, but setting at a profit maximizing price inherently means setting the price at a point where Q>0.

Of course they will pay much

Of course they will pay much more, but costs get out of hand pretty quickly. Let us say you have HIV, and a cure is announced today, at a price of 50M$. Everyone with HIV is of course willing to pay that sum. The ROI is infinite, because we only have one life, and if you die it is game over. Everyone is willing, but very few are able to pay the price. So no sale for the drug company with the cure.

Make up your mind: what are you worried about? Companies maximizing profit, or their ability to do so?

To give a different example, why do you think that you can buy a car in 60 monthly installments? Because a lot of people can't pay the whole price up front. So the company instead of no sale, it sells, and you end paying more for it. Ie even greater profit for the company.

Yes, lending money costs money, time preference does exist. If you are not comfortable with those facts, i wonder how you interpret 20th century history, and what you think you will achieve by posting on this website.

Bzzt. Wrong. The best way is to sell the treatment, and just as the patents expire, put the new improved treatment on the market. You know, the one you developed 10 years ago, but kept secret waiting for this magical moment of profit maximization. Rinse and repeat, ad infinitum.

If these new generations of drugs are indeed an improvement, then i do not see how this process of rinsing and repeating is anything but something to rejoice in.

Answering to Curunir & Eelco

Curunir said:
If there were a cure for HIV and it was extremely expensive, there'd be a market in financing
...
There's also a buried problem in your pricing model. Why do you suspect that firms woud charge $50MM if no one can pay it?

Yes, you are correct, I know that. I was just trying to make a point about the price being "big". (See below.)

Eelco said:
Make up your mind: what are you worried about? Companies maximizing profit, or their ability to do so?

I don't have a problem with entities that make something of value to get rewards for it. Eg. a company making a profit for the cure of HIV.

What I do have a problem with, is that the world is multidimensional, but with the current system we judge everything in only one dimension, profit. (I know that money as a concept abstracts away things. But I don't buy it. Eg. the "pollution tax" tries to map environment to profit. It is a big argument, but it doesn't work. Abstractions leak (in theoretic space), and the *motive*, ie "profit" vs "save the environment", makes a huge difference in the real world.)

If these new generations of drugs are indeed an improvement, then i do not see how this process of rinsing and repeating is anything but something to rejoice in.

Let me give you a scenario. I find treatments Ti and cure C, in the following chronological order, each finding being 1 week apart from each other. Each one of them gives me 10 years of patents protection:

t1, c, t2, t3, t4, ...

I have the cure and various treatments. If my only motive is profit, the best course of action is:
sell worst treatment first. Wait 10 years. (Various people die in between.) Sell second worst treatment. Wait 10 years. ... You only release the cure if you are out of treatments (not very likely), or for exogenous reasons, eg you know a competitor is getting near to find it.

If on the other hand the motive is not only profit, someone could argue that I should release the cure immediately.

I don't know with which option you would rejoice, but I hope at least that you see the significant difference.

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What I do have a problem

What I do have a problem with, is that the world is multidimensional, but with the current system we judge everything in only one dimension, profit. (I know that money as a concept abstracts away things. But I don't buy it. Eg. the "pollution tax" tries to map environment to profit. It is a big argument, but it doesn't work. Abstractions leak (in theoretic space), and the *motive*, ie "profit" vs "save the environment", makes a huge difference in the real world.)

Speak for yourself, you are free to judge as you see fit.

As cautious as i would like the government to be with influencing behavior, i do not think i will ever approve of any measure to manipulate motivation.

If on the other hand the motive is not only profit, someone could argue that I should release the cure immediately.

I don't know with which option you would rejoice, but I hope at least that you see the significant difference.

'If the motive is not profit' is a rather curious sentence. What do you have in mind? Gulag 2.0? Or are we just to wait for non profit oriented people to pop up? In that case, why not do the waiting while there is a profit incentive for profit oriented people as well?

How is the precise amount of intelectual property and how it is gamed even relevant? The knowledge obtained will be available to humankind for eternity. It is a classical case of time preference: rob all pharmceutical companies of their intellectual property and save millions of lives today. Sounds cool, untill you start counting the untold billions that will die in the future as a direct result.

These intellectual property rights are created because they serve 'our' goals in the long run. That they might also serve the interest of pharmceutical companies is good for them, and just that. The precise amount of IP to hand out is debatable, but my personal time preference tells me the duration is way too short.

"rob" pharmaceuticals of

"rob" pharmaceuticals of their intellectual property...

Actually, by preventing competitors to copy patented ideas, pharmaceuticals are the one who do the robbing. Property rights are not "created" for a purpose, they are a representation of justice, the definition of where legitimacy lies in conflicting over scarce ressources.

Homesteading principle

The subject says it all really. I dont suppose you happen to live in the united states?

 - Homesteading is a

 - Homesteading is a process by which you acquire the legitimate control of a scarce ressource, i.e. should a conflict arise over the use of said ressource you would have the legitimate say, i.e. the owner.

- I live in NYC, what's your point ?

 

So, how does your system of

So, how does your system of property rights judge over the distribution of the scarce resource of land? How does it tie in with those native american guys for instance?

What I do have a problem

Speak for yourself, you are free to judge as you see fit.

I didn't claim speaking for anyone else.

As cautious as i would like the government to be with influencing behavior, i do not think i will ever approve of any measure to manipulate motivation.

Could you please explain what you mean with this?

'If the motive is not profit' is a rather curious sentence. What do you have in mind? Gulag 2.0? Or are we just to wait for non profit oriented people to pop up? In that case, why not do the waiting while there is a profit incentive for profit oriented people as well?

a) You don't have to be insulting ("Gulag 2.0").
b) I think you have misunderstood me, in that you seem to think that I advocate *forcing* motive oriented people to stop, and *forcing* different motives. That is not correct, and I am against forcing anyone. As to what I have in mind, is free software and its philosophy, embodied in the GPL license. If you don't know about it, you should check it out. Among many many many other things, it has created Linux, a unix-like computer operating system that is rivaling the billions of dollars and untold man hours put in the commercial "windows" OS. Arguably, it is actually better. It and thousands other applications, were created for free (as in money), and are given for free (as in money and freedom, ie you can get the source and learn and/or improve it). For free. People did it for their "fun". To learn. Because they were curious. Because they could. And it is easy to see that that philosophy applies to everything that is not physical. You can get a taste of the philosophy here.

So you see, non profit oriented people have already popped up, and we live in interesting times. It becomes obvious that given that someone passes a relatively low threshold, things like "this is interesting", "I want to learn", "I am curious", etc, become bigger motivators than profit.

As for the rest of your comment:
I am against robbing anyone, and I agree with your time preference argument against robbing. But on the other hand, you haven't answered to my argument in my previous comment. Not releasing a cure, and selling a new treatment every 10 years, is also another nice way to start counting dead people. And profit motivation leads towards that direction.

My meta-argument is that if there was no IP, and anyone interested could have free access to all the knowledge (and data, and experiments results, etc) to use, think on, test, get inspired by, question, interpret by his POV, etc, we would all end up far better off than the current system. And I think that free software gives a very good and strong experimental (in the real world) outcome in favor of this view.

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GPL

Hum actually the GPL does force people to licence as GPL projects containing code they copied from a GPL'ed project. While obviously less coercive than mere copyright, it's still an agression.

GPL

Hum actually the GPL does force people to licence as GPL projects containing code they copied from a GPL'ed project. While obviously less coercive than mere copyright, it's still an agression.

Yes, but it is targeted "aggression" against the aggressors. Those that want to appropriate the effort of others, and if they make something new, not give anything back. It is in effect saying "if you want to learn, agree that I want/can learn too". In an ideal world a BSD license would suffice. Unfortunately (or not (it could be boring :-) )) we don't live in such a world.

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It's not that targetted. If

It's not that targetted. If I make a project with GPL'ed code and release it copyright free but without the source code, I am not agressing anyone yet the original licensor could sue me.

It's not that targetted

It's not that targetted. If I make a project with GPL'ed code and release it copyright free but without the source code, I am not agressing anyone yet the original licensor could sue me.

You are "aggressive" in that you got:
a) a tool to use (the program),
b) knowledge (in programming, in algorithms, etc, by the source), and
c) the ability to modify/enhance the tool according to your fancy or need (by again having the source)

In return, you just give back a tool and not knowledge and freedom to tinker, express and modify.

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I "got" something but I

I "got" something but I didn't "take" anything. I am not bound by any contract. I am offering a software without the convenience of a source code to tinker with, you are free to refuse it. I am not agressing you by merely making you an offer. The only person I could possibly be agressing is the original writer of the software, if there were such a thing as IP.

I "got" something but I

you are free to refuse it

No. *You* are free to refuse the original GPL code you based your program on. Without it, there wouldn't be a "your program". And by refusing to give your code (if you accept the GPL) you deny the existence of the "next guy's program".

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Im sorry, i assumed you were

Im sorry, i assumed you were advocating the creation of new policy, but it appears you are talking about abolishing it. Ok.

Software and medicine are different things, at the very least quantitatively. Creating medicine is expensive. 20 years is not much in the long run for medicine, whereas 20 years is eternity in the computer world: whatever you patent is probably outdated by that time anyway.

As an illustration: Free software pops up even in the situation we have, where patents do exist. Where is the non-profit developed medicine, as a counterexample? Right. Thats a good indication of what will happen when you abolish medical patents.

Patents and copyrights are

Patents and copyrights are two different beasts. You cannot really compare them. Your argument also ignores the possibility of making money out of drug development without a patent system. For example, insurers could agree to set up rewards for the development of specific cures.

They are both intellecual

They are both intellecual property. Can you be more specific on how you think such details conflict with my arguments?

What would be the incentive for insurers to do so? Everyone gets the benefits, and a subgroup bears the cost. Doesnt sound too functional to me. Do you have any examples of it happening?

Software and medicine are different things

Creating medicine is expensive. 20 years is not much in the long run for medicine

I don't know much about the process of creating medicine. Having said that, why exactly is creating medicine expensive? It seems that the biggest cost (in money and time) is in the necessary clinical tests at the end. But that is unavoidable, and so you will have the cost either way. Also I read an article some time ago (sorry, no link readily available, and I don't know how trustworthy it was) that claimed that the biggest cost for pharmaceutical companies was advertisement and "gifts" (free travels to "conferences", etc) to doctors.

Also, as I have already said, the free software philosophy is applicable to anything not physical. Most people don't have laboratories with chemicals, microscopes, and patients to hack :-) laying around. So yes, medicine is different, as in "physical". But it seems that nowadays the trend is for a tiny sample of DNA, and a sequencer or what not, and a few GB file of the DNA. Things are starting to come in range of the "dedicated amateur". Obviously you still need things that most people can't readily have, but up to a point, we are getting there.

Then it will be obvious to answer the "Where is the non-profit developed medicine, as a counterexample?". But actually, how did people manage to cure themselves before the medical patents? And why is it that nowadays medical companies send people to tribes all over the world to get information about which plant is used for which problem? And then when they isolate the active ingredient in the plant, they patent it, so that the children in those tribes will have the privilege along with all of us, to pay for it.

It is not that far back that there was no internet, and no free software. And its increase in quantity and quality is phenomenal. I think that that is a good indication of what
would happen if there were no medical patents. Actually, no patents in general.

Really, if a company makes a step forward, does it mean that it will also solve the next problem? Why forbid anyone else the chance? Why make everyone else wait for 10 or 20 years? It seems obvious that the process is: someone has an idea, and someone else improves it, and then a third says "great, that solves the problem I had, and now I have the complete solution for something different and better".

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1) creating new medicine is

1) creating new medicine is not within the range of the average amateur, or any amateur at all.

2) how do you patent a plant?

3) Actually, up untill not too long ago, people didnt do a very good job of curing themselves.

Im not saying the current system is perfect, most certainly not as it applies to software. But the benefits are way greater than the costs.

creating new medicine is

1) creating new medicine is not within the range of the average amateur, or any amateur at all.

Is creating world class OS and applications in the range of amateurs? Why is medicine different? (Except for physical things like clinical tests.) Especially now that medicine is becoming information theory, being abstracted away to the 4 letter language of DNA.

2) how do you patent a plant?

If I tell you "cure HIV", it seems to be tough. If I tell you "this specific plant cures HIV", do you think it would be as difficult to tear it apart and find the active ingredient?

And actually, the sad thing is that you can patent a plant. Just ask monsanto (sp?) and their genetically manipulated seeds. (And btw, it will be great when we end up with a sterile, patent protected, monoculture of monsanto's mega-super-whatever-golden-nutralicious-that-kills-everything-else (TM), and a new bug comes along. We will starve to death, but at least the few crops salvages will be sold to the few survivors to such a price, that shareholders will be ecstatic.)

Im not saying the current system is perfect, most certainly not as it applies to software. But the benefits are way greater than the costs.

How do you support that the benefits are way greater than the costs?

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1) programming is relatively

1) programming is relatively simple and can be done incrementally. I could create an OS, but not any sort of medicine. Molecules do not just come falling out of replicators you know: synthesizing a new molecule is a feat every time again, involving huge hyper expensive physical plants performing countless different steps. Then consider the combinatorial hell of different possibilities to investigate, and you know you have a hard problem. The non-existance of open source medicine is sufficient evidence against its implausibility. Patents cannot stop it from happening: there is no such thing as 'the' cure for anything. Every condition is complex enough to have for all intents and purposes infinitely many weak spots. There isnt really anything stopping anybody from developing an antidepressant that does work, for instance.

2) what you could patent is the specific way in which you replicate the active ingredient, and i do not see anything wrong with that. nor with patenting the plant you have modified, although i agree some really retarded rulings have been made in this regard.

The benefits are smaller than the costs if and only if you believe the accelerating effect on the development of medicine is on average less than the patent duration period. Better to have the option to buy your cure for 50M rather than not have that option at all. And i see the nonexistence of open source medicine as giving adequate information to answer that question.

programming is

programming is relatively simple and can be done incrementally. I could create an OS

Heh. Thats a bold statement. And also everything that has to do with knowledge is being done incrementally.

Then consider the combinatorial hell of different possibilities to investigate, and you know you have a hard problem.

Of course it is a hard problem. But the combinatorial explosion is an argument for letting more eyes in, not less. For instance look at folding@home for a "dumb", just-giving-cpu-time first step.

The non-existance of open source medicine is sufficient evidence against its implausibility.

You repeat this throughout, but it is wrong. It is like saying ~ a century ago that "the non-existence of airplanes is sufficient evidence against its implausibility". It is just a thing of necessary prerequisites, that for medicine are starting to fall in place. DNA abstracts things away, and we have the internet. You don't have to pay someone to do something he likes. And someone "liking" to do something, is a bigger motivator than money (after a low threshold is passed).

Patents cannot stop it from happening: there is no such thing as 'the' cure for anything. Every condition is complex enough to have for all intents and purposes infinitely many weak spots. There isnt really anything stopping anybody from developing an antidepressant that does work, for instance.

I just did a quick search, and found this
and this.
In the first link, we read:

A surge in patents that protect surgeries and other medical methods has triggered numerous lawsuits in recent years, with inventors fighting more vigorously than ever to protect their intellectual property rights.

Patent lawyers say doctors and scientists are suing to protect everything from laser eye surgery techniques to stent procedures to methods for declawing a cat.

And in the second, we are told by Nobel prize-winning economist Joseph Stiglitz, that:

Drug companies spend more on advertising and marketing than on research, more on research on lifestyle drugs than on life saving drugs, and almost nothing on diseases that affect developing countries only.

The chief executive of Novartis, a drug company with a history of social responsibility, said "We have no model which would [meet] the need for new drugs in a sustainable way ... You can't expect for-profit organizations to do this on a large scale."

It is hard to see how the patent issued by the US government for the healing properties of turmeric, which had been known for hundreds of years, stimulated research.

No comment by me here, as it is kind of obvious.

You say:
The benefits are smaller than the costs if and only if you believe the accelerating effect on the development of medicine is on average less than the patent duration period.

That is like comparing distance with speed. It is apples and oranges. But the point is, that in a system with no patents to put breaks on the spread and use of knowledge, the development would be exponentially faster.

Better to have the option to buy your cure for 50M rather than not have that option at all.

In a strict logical context, this is true. But it is also better to have the option to have my cure for 10$, 10 years earlier, and being in a much more advanced in regards to knowledge state, than having to pay 50M$ and none being able to use the knowledge.

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Let us say you have HIV, and

Let us say you have HIV, and a cure is announced today, at a price of 50M$....Everyone is willing, but very few are able to pay the price. So no sale for the drug company with the cure.

Likewise, everyone is willing, but few are able, to pay for 10 years of treatment with a net present cost of $50 million. So $50 million would probably not be the profit-maximizing price for the cure.

To give a different example, why do you think that you can buy a car in 60 monthly installments? Because a lot of people can't pay the whole price up front. So the company instead of no sale, it sells, and you end paying more for it. Ie even greater profit for the company.

After taking risk and the cost of capital into account, the dealership's profit should be about the same for a car bought on credit as for a car bought with cash. If this weren't the case, the customer could do better by getting the loan from a bank.

The best way is to sell the treatment, and just as the patents expire, put the new improved treatment on the market. You know, the one you developed 10 years ago, but kept secret waiting for this magical moment of profit maximization.

One problem with this argument is that it assumes that the treatment has a lot of room for improvement--i.e., that it doesn't mask the symptoms very well, that the treatment is painful or inconvenient, etc. Insofar as this is true, it simply increases the relative value (and hence profitability) of a cure.

Nope :-)

Likewise, everyone is willing, but few are able, to pay for 10 years of treatment with a net present cost of $50 million.

See my earlier comment on free software. Developing a OS and thousands of applications also needs hundreds of millions, but it has happened for free. Something being liked by someone, is a bigger motivator than money.

After taking risk and the cost of capital into account, the dealership's profit should be about the same for a car bought on credit as for a car bought with cash. If this weren't the case, the customer could do better by getting the loan from a bank.

No. We have 2 profits here. The profit in the price of a car, and then the profit for the financial institution, if the car is bought on credit. The second part is the same, but you have to add the first too.

One problem with this argument is that it assumes that the treatment has a lot of room for improvement--i.e., that it doesn't mask the symptoms very well, that the treatment is painful or inconvenient, etc. Insofar as this is true, it simply increases the relative value (and hence profitability) of a cure.

But this doesn't answer anything. It increases the relative value of the cure, but the best strategy is still to not release the cure, and wait as long as possible.

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