Should the U.S. try M&A to save on hep C? Gilead would be a good buy, experts say

Gilead Sciences is the market-share leader in hepatitis C, and even at payer-discounted prices, its blockbuster meds Sovaldi and Harvoni are expensive.

Here’s a radical solution for hepatitis C treatment in the U.S.: The government could play private-equity investor and buy the leading drugmaker in the field, Gilead Sciences. Price: $156 billion. Payoff: Curing most hep C patients in the country for less than it would take to buy the drugs.

Memorial Sloan Kettering Cancer Center official Peter Bach and MIT Center for Biomedical Innovation director Mark Trusheim put forth the idea in a Tuesday op-ed for Forbes. Noting the controversy over Gilead’s hep C pricing since its groundbreaking, highly effective drug Sovaldi won FDA approval in late 2013, the co-authors said the U.S. could save billions by taking over Gilead. Millions of patients would get quick access to treatment, too, they said.

“[B]uying Gilead outright on the open market could lower hepatitis C drug costs per patient to one-third their current level,” the article states. “That would make it affordable to rapidly treat the 2.7 million Americans the CDC estimates still have hepatitis C.”

This is a “one-off solution,” the authors say, that only works because of the math peculiar to hep C and Gilead.

It’s certainly a creative suggestion, but as drug prices rise—into the millions for gene therapies, which have only begun to hit the market—a variety of industry watchers have suggested that covering the costs will require big leaps away from the current, cash-up-front system. Pay-for-performance deals are on the table for many drugs, including Amgen’s Repatha, one of the pricey but very effective cholesterol fighters in the PCSK9 class, and Novartis’ Entresto, a heart failure drug that has had a tough time getting off the ground. GlaxoSmithKline, which sells a gene therapy for “bubble boy disease,” Strimvelis, has also mooted pay-for-performance and other models as ways to cover the high costs.

Others have suggested annuity-based payments, long-term installment payments based on drug results, mortgage-like instruments and other out-of-the-box ideas.

At a time when drug stickers are under intense scrutiny, and the incoming U.S. president is vowing to bring down prices, many drugmakers fear that the government will take steps to adopt proposals they’ve fought against for years, such as Medicare price negotiation and drug reimportation.

Bach and Trusheim write that their hep C idea would steer clear of government intervention such as price controls, which could be a precedent-setting problem across the industry. It would also eschew the “march-in” on patent rights some public health advocates have backed for particular meds, including Pfizer’s newly acquired prostate cancer drug Xtandi. Under the Bayh-Dole Act, U.S. health agencies can open up competition to patented drugs developed with the help of NIH funding, although the government has never taken that step.

Gilead’s current market cap is about $100 billion. Offering a 30% premium to shareholders, and assuming the company’s $26 billion in debt, would cost the U.S. $156 billion. But the government could, by paring away Gilead’s portfolio and repatriating its foreign cash—tax-free, of course—lower that cost by more than two-thirds, the authors say.

“Like any savvy strategic buyer,” the U.S. would sell off unneeded assets, including its hefty HIV franchise ($52 billion), research pipeline ($10 billion, potentially far more), and ex-U.S. hep C business ($17 billion), the authors say. Net? $77 billion. Foreign cash of $31 billion, and we’re down to $46 billion. Taking into account long-term gains and $2 billion in manufacturing costs, the final price would be $40 billion, they say.

That brings the cost per patient treated to about $15,700, they figure. Other moves could cut the cost even more. “We have $1 bet between us whether we are praised as creative capitalists or condemned as communists for this unprecedented approach,” Bach and Trusheim write. Check their math and see what you think.