Hilary Names Shkreli And Gilead To List Of "Drug Speculators"

In May Senator Bernie Sanders went on an HCV rant to get veterans access to the best HCV drug available -- Gilead's (NASDAQ:GILD) Harvoni. On September 21, I said it was time to take profits in Gilead due to howls for more regulation, amongst others. The very next day presidential candidate, Hilary Clinton, crafted a formal plan to drive down the cost of prescriptions. Shares of several drug stocks subsequently got hammered. On a recent campaign in New Hampshire, she vowed to reign in drug speculators like Turing's Martin Shkreli and Gilead:

"Some of you have heard about this pharmaceutical company where the guy's now been indicted-Turing-right? Well what he did was go out and find a drug that people had to have to survive ... mostly for AIDS patients but not totally," she said. "So he buys a company that is selling this drug and overnight increases the cost from $7.50 a pill to like $750 a pill ... We can't let the speculators buy drugs" with expired patents and "increase the cost like that."

She later went in on Gilead:

"Apparently hepatitis C is incredibly prevalent in Egypt. So the drug manufacturer made a deal to sell very, very cheaply in Egypt. Which is great," Clinton said. "But the drug is so expensive that a lot of states can't afford it in Medicaid and a lot of private insurance companies can't afford it. So here we are once again a company came up with a great lifesaving curative drug that we had something to do with and they're willing to sell it at a really cheap price nearly anywhere else but here. We can't let that go on."

Price Gouge Much?

GILD longs may find Hilary's comparison of Gilead to Turing a bit over the top. I have always held the believe that Gilead's original $83 thousand asking price for Sovaldi was based on what the market would bear. After all, the drug was saving lives. However, after the initial euphoria of Gilead's miracle drug wore off, it was only a matter of time before demands from the public and lawmakers for "more affordability" began to weigh. The recent Wyden-Grassley report confirmed that Gilead's HCV pricing was divorced from R&D costs. That said, Gilead may no longer have a leg to stand on in the price gouging debate.

The fact that there is a drop off in the price for Sovaldi/Harvoni in other countries vis-a-vis the U.S. seems to support the notion that Gilead will charge whatever it can get away with. I understand the dual pricing strategy pursuant to third world countries, but even in Europe Sovaldin/Harvoni is cheaper.

Sales per HCV start were identical in Q1 for the U.S. and Europe. By Q3 the cost in the U.S. was about $53 thousand versus $30 thousand in Europe.

GILD bull Jim Kimmelman believes the disparity in pricing is due to a disparity in the respective GDP of European regions versus that of the U.S.:

Above is a chart of India, Egypt, Portugal, Germany, France, Canada, Japan, and the United States. The chart shows the close relation between GDP per capita and for the 12-week course of treatment. The relation is quite close as Gilead looks closely at the ability to pay in its revenue calculations.

I, on the other hand, am in the camp that Europe's single-pay system is simply better at negotiating drug prices than the ad-hoc process used by Senator Sander, Mrs. Clinton, the VA or Medicaid. Gilead's internal HCV data appears to support this thesis. However, a collective revolt by Senator Sanders, Senator Grassley, Senator Wyden and Mrs. Clinton could change that.