- Executives at Gilead are leaving a sinking ship.
- Sales of a breakthrough drug they purchased through the acquisition of Kite Pharma have failed to match expectations.
- Gilead charges thousands of dollars for a drug for their AIDS drug, but competition is creeping in.
- Since Truvada was approved for HIV prevention six years ago, its average wholesale price has increased by about 45 percent.
- Without more drugs to buy Gilead’s stock has been declining.
When it comes to what’s wrong with pharma Gilead is a shining example. According to the LA Times “the evidence that Gilead itself uses its profits to “innovate” is thin at best. In 2016, the company reported profit of $13.5 billion. It spent $11 billion to repurchase its own shares, and about $2.5 billion on stock dividends. So the buybacks and dividends together, came to $13.5 billion, in effect consuming 100% of the company’s profit”.
Gilead doesn’t do much research and development itself. Instead, it has acquired firms that have done the heavy lifting and markets their successes. It acquired its blockbuster hepatitis C drug, Sovaldi, by paying $11 billion for the drug’s developer, Pharmasset, in 2011. Its new lymphoma treatment came via a $12-billion acquisition of that drug’s developer, Kite Pharmaceuticals, but sales have been, to say the least, disappointing.
Gilead’s HIV drug has been hit with competition. Cimduo, from drugmaker Mylan is very similar to Truvada. Cimduo is 40% lower than Truvada’s roughly $1,800 monthly sticker price and even though Gilead has offered a voucher to help cover out-o-f-pocket costs the price is still prohibitive.
So what happens when Gilead can’t buy any new drugs? Management leaves the sinking ship.
The bet on Kite Pharma’s drug has failed to materialize while sales of their drug for Hep-C have been tanking even though there are a lot of people who need the drug and can’t afford it. Gilead calls these people “hard to reach” but health organizations, like the VA, say they they can’t afford wide spread distribution of the drug because of costs.
Rather than think strategically and prepare for the future Gilead’s top executives have chosen the easy path of deserting a sinking ship. While Wall Street punishes Gilead’s stock because of their declining sales management decides the best leadership is to leave.
Let’s stop pretending here. Gilead is a prime example of what’s wrong with pharma. Buying therapies and marking them up so that most people go broke trying to pay for them. Hopefully the people who take the places of the departed executives can right the course of their strategy but I’m not hopeful.