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.
