Why President Trump Should Buy Gilead Sciences

By Rich Smith Markets Fool.com

"I'm quite liberal and getting much more liberal on healthcare and other things. I really say: What's the purpose of a country if you're not going to have ... healthcare?"
-- Donald Trump's 1999 interview with Larry King

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Ah, but is Donald Trump liberal enough to consider nationalizing a healthcare company? That's what inquiring investors should be asking today.

It's time for President Trump to lend a hand to controlling healthcare costs. Image source: Gilead Sciences.

It's been a little over a week now since Gilead Sciences (NASDAQ: GILD) reported its fiscal 2016 earnings results -- 10 days since the maker of the Harvoni, Sovaldi, and Epclusa antiviral medications, which are credited with the ability to completely cure a patient of the Hepatitis C virus (HCV), shocked the market with news of a 25% decline in full-year profits on a 7% decline in sales. Of particular worry was Gilead's projection that sales of its HCV drugs could decline by as much as 50% in the current year.

This double whammy of bad news drove Gilead stock down 9% in a day -- and cost its shareholders $9 billion in lost market cap. It also got me thinking: Now that Gilead stock is so cheap, what if someone were to buy Gilead Sciences lock, stock, and barrel? What if that someone were Donald Trump?

A crazy idea

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After all, it was Donald Trump himself who promised, during the CNN-Telemundo debate on Feb. 25, 2016, that he was "going to make great deals" in healthcare after becoming president. Some experts think that by nationalizing Gilead and distributing its HCV drugs for free, government could cut its cost of treating this single disease by 65% to just $40 billion. For that matter, what could be a greater deal than buying one of the country's leading healthcare companies that's only valued at $91 billion in market cap, orless than seven times earnings?

Problem is, right now, not a lot of folks on Wall Street do think Gilead Sciences is a great deal. Thanks to the company's rapidly evaporating HCV franchise, analysts currently predict at least five straight years of precisely 0% profits growth at Gilead. Even with the stock paying out a very respectable 3.1% dividend yield, not many investors have the patience to sit around for half a decade waiting for growth to return.

A crazier business plan

To be perfectly blunt, this is a dilemma entirely of Gilead's own making. The thing is -- human compassion aside for just a moment -- if you want to make money in healthcare, your ideal situation is to target a disease with lots of sick people (read "potential customers"): a disease with symptoms you can treat for a long time, but never actually cure (read "potential repeat customers"), while charging as much as humanly (corporately) possible to treat that disease. This is a great recipe for growing profits -- but it's not quite so great for a politician like President Trump, who's aiming to lower the cost of healthcare.

That's where Gilead comes in. Unlike other pharmaceutical companies that aim to "treat the symptom" rather than "cure the disease," Gilead's HCV medications actually cure patients entirely. Data indicate that patients undergoing a full course of treatment with Gilead's HCV drugs are fully cured of the disease in more than 90% of cases. Problem is, once cured, these no-longer-patients no longer need to buy the drugs, and no longer create revenue for Gilead.

Simply put: Gilead has done such a great job curing HCV that it's eliminating its own market.

A plan to cure high healthcare costs

True, it's not all bad news for Gilead. While its HCV business is evaporating, business continues to boom at double-digit rates in the company's HIV franchise (sales up 12% in Q4), in hypertension drugs (Letairis sales up 15%), and in angina treatment (Ranexa sales up 24%). But the success of these businesses hasn't been enough to distract from Gilead's HCV business, which is imploding.

Now, this trend has been evident for some time, and investors have responded by selling off Gilead stock to the tune of a 43% decline in stock price over the past 20 months. That's a problem for Gilead shareholders -- but it's also a problem for American taxpayers. Here's why.

"Pharma bro" Martin Shkreli notwithstanding, pharmaceutical-company CEOs are not dummies. When they see a choice between treating a disease and reaping big profits, or curing a disease and eventually having no sales, they naturally opt for the former. It's the right business decision, the right thing to do if you want to "maximize shareholder value." But it's also a big reason why the U.S. spends more than any other nation on earth, yet ranks only No. 37 on the World Health Organization's list of the world's best health systems (behind Chile, Dominica, and Costa Rica -- but who's counting?).

And yet, right now, corporate America has little incentive to eschew profits in furtherance of the public good. Switching from a business model that aims to cure disease, rather than merely treat symptoms, would threaten profits and court the same disaster that has now befallen Gilead's stock price.

On the other hand, given that curing disease is ultimately more cost-efficient than treating symptoms over a long period of time, such an approach is in the direct interest of taxpayers, and of politicians like President Trump, who built a campaign on promises to "make great deals," "cut wasteful spending," and make America('s healthcare system) great again.

When you consider that Americans spent $3.2 trillion on healthcare in 2015, with healthcare costs rising at three times the rate of inflation, I'd say there's no time like the present for the President to get to work on this. It's time to nationalize Gilead Sciences, to pay a nice premium to do it, and to show Gilead's pharmaceutical peers that there is indeed profit to be made in curing disease, and not just in treating its symptoms.

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Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool has a disclosure policy.