Monday, February 13, 2017

Can President Trump enable the Government to run a Pharmaceutical company (Successfully)?


This a good idea to lower the price of a single drug for a single disease. Problem is the government cannot “run” a successful business (government cannot even run the government correctly). If ever an American President was able to run business it is President Trump, but it would take years to fire the incompetent Bureaucrat populating the Hall of our Government!

Trump Can Lower Drug Prices By U.S. Government Purchase Of Drug Companies

John LaMattina, CONTRIBUTOR

FORBES     JAN 18, 2017 @ 08:04 AM



Major mergers in the biopharmaceutical industry are driven by a variety of factors, but the major one tends to be the acquisition of new assets to fuel growth of the acquiring company’s pipeline. I was personally involved in such processes a few times during my Pfizer tenure. When the possibility of a Warner-Lambert merger with American Home Products arose back in 1999, Pfizer stepped in and executed a hostile takeover with the express purpose of having sole access to what was becoming the biggest-selling drug of all time–Lipitor. Similarly, when Pfizer was facing a revenue gap in 2004, it acquired Pharmacia, not just for control of the COX-2 pain medication franchise, but also for a variety of other Pharmacia products that blended well with Pfizer’s drug portfolio.

Whenever a company is contemplating an acquisition or merger, it goes through extensive analyses to justify such a move first to its board of directors, then to its shareholders. These deals generally run into the tens of BIILIONS of dollars as one must pay not just the current value of the desired company but also a significant premium over that price in order to make the bid sufficiently attractive to the board and shareholders of the takeover target. To justify such an acquisition, the acquirer needs to show not only the long-term revenue potential of the desired products, but also ways to strip out costs–the dreaded “synergies” that arise from redundant efforts–as well as jettisoning specific assets that the acquiring company isn’t interested in retaining, such as major divisions (e.g., chemical or agricultural) or specific products. Such analyses can generally be used to justify paying the price necessary to close the deal.

Dr. Peter Bach of Memorial Sloan-Kettering Cancer Center, a longtime advocate of affordable drug pricing, and Dr. Mark Trusheim of MIT’s Center of Biomedical Innovation have taken the concept of biopharma acquisitions and applied it intriguingly into a plan, laid out in a post for FORBES, for the U.S. government to obtain access to important drugs. The drugs in question are the hepatitis C cures Harvoni and Sovaldi, both sold by Gilead. They propose a plan that not only saves the government money, but also would enable millions of patients who still have hepatitis C to get cured as soon as possible. These patients are currently caught in a bind because the high costs of these drugs--even at the rebated price of $42,000/patient for a course of treatment–is too much a burden for the government to bear all at once.

Essentially, Bach and Trusheim have done an analysis that any big company would do for a major acquisition. Gilead’s current market cap is about $100 billion. Taking into account the need for a 30% premium as well as the assumption of Gilead’s $26 billion debt, the price rises to $156 billion. However, the authors believe that divesting Gilead’s HIV franchise for $52 billion, other pipeline assets for another $10 billion, and divesting the ex-U.S. hepatitis C business for $17 billion, the cost of the deal is down to $77 billion. The government would also gain the $31 billion that Gilead has stashed in overseas cash and, with other savings, the cost comes down to about $40 billion, a price that amounts to a per patient cost of about $15,700 for wiping out hepatitis C, a disease that causes liver failure and liver cancer. As the authors say: “That’s a 63% savings, a no-brainer even before the corporate jet is sold.”

While this sounds pretty enticing, there are issues in trying to do this. For one thing, the government would become a competitor with U.S. businesses that, theoretically, the government would like to see thrive. Both AbbVie and Merck have drugs that compete with Gilead’s drugs. Bach and Trusheim believe that, since Gilead’s drugs amount to 80% of the hepatitis C business, the market has spoken as to their value. However, having the government as a competitor would damage AbbVie and Merck’s efforts and could force drug companies out of R&D in key fields threatened by potential government invasion.

The U.S. government would be challenged to execute such a plan. What agency would be responsible to analyze such deal opportunities? Who would manage it once it was acquired? After all, the drug would need to be manufactured, quality monitored, distributed, etc. The government could contract this work out, but it would add another layer of bureaucracy. Theoretically, the government could use this tactic for other drugs. I have no doubt that there are rare or orphan disease drugs currently sold by biotech companies much smaller than Gilead. Should the government become a procurer of such firms? Finally, my guess is that, if large pharma companies got wind of Gilead being in play, suitors with deep pockets might enter the bidding process for Gilead. Should the government be involved in such bidding wars?

Nevertheless, the Bach-Trusheim proposal in intriguing. Some will undoubtedly attack this plan as the beginnings of governmental nationalization of the biopharmaceutical industry. I don’t think that’s the case. Such a takeover of Gilead would mirror a similar takeover by a big company. The deal wouldn’t go through unless Gilead’s board and shareholders approved it, just like any other deal. Furthermore, my guess is that this sort of move may appeal to President Trump’s business sense. He’s looking to bring down drug prices and for different ways for the government to impact the process. This plan certainly does that.