Where are the visionary bulls of yesterday, who (along with myself) blithely assumed 120 by yearend? I repositioned myself in this yesterday, but will never again own the large chunks of it I once held. And, after having lightened up on a lot of pharma stocks after the ABBV/ESRX deal, I will be more cautious about owning them in the future, as I think many fund managers will. The basic assumption that the insurance companies and PBM's would pay for the superior treatment, whatever its cost, has been called into question.
I assume that you're replying to bagholder54, who obviously has the experience and knowledge. And, like you, I assumed that Gilead management had a plan. Wrong. I think this is a new paradigm. Basically, ESRX has said, " Okay, it may not be the best drug, but it's the cheapest drug, and that's what you're getting."
Considering that you basically put out the warning flags which virtually no one (including the analysts) saw, your modesty is quaint. The difference between your viewpoint and the common wisdom is a mere $20 billion. Kudos.
No, ABBV's management is faced with the imminent expiration of their Humira business and the failure of their deal with Shire. They are desperate for any kind of a win. And you do not pick a fight with someone who has no way out.
ABBV's patent on Humira, their major cash cow , is about to run out. Their deal with Shire fell through. If they didn't get a piece of the HepC action (which they have taken major legal risks to access) they were toast. A good rule is never to do battle with an enemy who has no alternatives or exit. ESRX obviously understood ABBV's position and GILD's management didn't.
This is an another thing you are right about. Yahoo! keeps "improving" their message boards, and they get less and less intuitive.
Au contraire. Bagholder54 is the only poster here who really understands how this stuff works. The fact that he also drank a bit of the Gilead Kool-Aid doesn't change this. Calling him "clueless" is ridiculous in the face of a 15+ price drop. I figure that his "clueless" post saved me about $40,000. ( And, if I'd really taken his post to heart, a lot more than that.) A great part of wisdom is realizing when someone knows more about a given subject than you do, and, secondly, acknowledging when you are wrong.
Actually, you were the only poster with real insights as to what the dynamics of pricing were. Yet you also expected a more rational response from Gilead management. Since they had been able to essentially dominate the HIV market, I did, too. But, thanks to your warning, I hedged a bit.
Their bargaining position is demonstrably weaker than it was Friday. Or, more to the point, six months ago. Moreover, while they have the best drug at the moment, that may not be the case for long. And there is nothing to prevent the insurance carriers from delaying treatment for noncritical HepC patients until there are better alternatives than the ABBV combo. And, presumably, cheaper ones.
This is compounded, of course, by the fact that they have been supporting the stock price at 100, which turns out to have been a further misuse of stockholders' money.
The fact is, these drugs are so expensive, very few individuals can pay for them without the help of an insurance carrier or the government. In European style socialized medicine, the various authorities weigh the offsets between price, added lifespan, quality of life, etc. and essentially dictate the price of the drug. Ironically, in this case, it seems that the PBM's have taken over that role. We can all imagine how relieved and grateful the government and the insurance companies are.
I have always thought that the people who are running Gilead are smart. But this fiasco is giving me pause. If they were really going to face down ESRX, they should have signaled this earlier, which would have given ABBV the leverage to extract a higher price. Not having done so, they had to know that this deal was already made. The fact that ABBV was spending millions on HepC advertising months ago was a clue to some of us.
So $20 billion or so of stockholders' equity evaporates and they are mute.
If you are headed into the playoffs and a good starting pitcher is available, you take him and pay the price -- whether you need him or not, just to keep your opponents from getting him. Not to make a deal with ESRX was a costly and stupid mistake.
Once again, thanks for your original post which really shed a lot of light on how this stuff works. I completely agree that this fiasco represents a failure on the part of GILD's management. If you go into this event with the most powerful and vocal PBM uncommitted to a superior therapy, that is plain stupid. They should never have given ABBV that opening. Also, I think that the analysts- or some of them - might have foreseen this. If they had read your post, they might have. Thanks again for sharing your knowledge. (But, as you are probably about to find, gratitude is the rarest of human emotions.)
I am not a fan of Cramer, who I think is always telling you what you should have done last week. And a week before yearend is a hard time to take profits. However, if you hold profitable positions in some of these stocks, it might be a good time to hedge with some short positions in the sector ...or if you trade options, which I don't, with some puts.
In one of your five posts under this name to date, bobcat, you say that you "appreciate good informative posts". But you have never complimented or approved of a single post. In fact, your only contribution to these boards is a little spurt of vitriol every couple of months. Aside of course from your deathless wisdom, "stocks go up and stocks go down". Profound.
Glad someone reposted this, the most valuable post on this board all year. In fact, it was the reason why I sold GILD out of my IRA Friday. Occasionally, amidst all the blather and posturing here, someone really knows what he/she is talking about.
The last time he told everyone to get out of biotechs was just as the February selloff was ending. But I do think this event has compromised a lot of the assumptions underlying the sector.
Yes, every misfortune is a profit opportunity for lawyers. But not necessarily for their clients. However, as bagholder 54 pointed out in his posts some time ago, this kind of arrangement is Standard Operating Procedure for the PBM's. They are the ones who determine the real price of these drugs. And if the drug companies are expecting the government to intervene on their behalf, I think they will be disappointed. I frankly thought that Gilead management might be too smart to be trapped like this.