How profitable is Pharma?

I'm really busy this morning, and probably won't be blogging much, but there's an interesting debate going on in the comments threads about the return on investment in the pharmaceutical industry. You have to be very, very careful with this stuff, because there's enormous survivor bias in stock screens. A pharma that has a long, bad run of no good drugs disappears from the sample through merger or failure. Sadly, this is pretty common, which is why so many pharmaceutical firms have obviously compound names. If you have relatively binary outcomes--companies are either very profitable, or not profitable at all--then if you drop the non-performers from the sample, being in the pharmaceutical business will look like a license to print money. The fact that so many new entrants find it so hard to actually grow to pharma size indicates that it might be a little harder than it looks.