Tuesday, January 17, 2016

In Forbes today Peter B. Bach and Mark R. Trusheim propose that the U.S. Government buy Gilead from its shareholders. They argue that the approach is market based, enables cost effective access to the company’s blockbuster Hepatitis C drugs at an affordable price, and paves the way for addressing an ongoing public health crisis. As it stands today, buying the company rather than purchasing its products lowers the cost to one third current levels as the authors show in a break-up analysis where the government would sell the non hepatitis parts of Gilead after buying the company.

Buy the Company or the Pills? Use the model below to explore which is better for the US Government

Below is an interactive model of a US Government led, private equity style, stock market acquisition of Gilead Pharmaceuticals to obtain its Hepatitis C product portfolio to increase access and lower cost. Change any of the cells shaded green, but not the others which contain formulas. You may start over at any time by simply refreshing the page in your browser.

In the model you can change the value of Gilead, the acquisition premium to pay as well as the value of subsequently divesting its products and operations not related to the US Hepatitis C business. In addition, you can change the cash and capital taxes the Federal government would receive from the transaction. You may also change the number of Hepatitis C patients to treat, the current price of the treatment, the manufacturing costs and how much the Federal government should recover from private insurers.

With the model you can see under what conditions the Federal Government might not just reduce cost, but even make money. Alternatively, you could find conditions under which the Federal Government is better off buying the pills rather than the company. The starting case is based on the best information available to the authors and shows that the price to cure each hepatitis C patient could be reduced by nearly two thirds by acquiring the company rather than buying the pills at the current net price.

Eric Norman