Pharma Industry Dodges Threats In Health Care Bill
The health care package passed on Sunday contains few provisions
that are poisonous to the pharmaceutical industry, though drug
makers may have to pony up several billion dollars more than
Absent from the legislation are provisions that would allow
American consumers to buy re-imported drugs from abroad and let the
federal government negotiate drug prices, two controversial issues
that the industry has said would devastate their balance
The approval of the bill is likely to be applauded by Wall
Street and could benefit the stocks of drug makers in the
"I was unable to find anything in there that would cause me to
have anxiety if I were a shareholder in a pharmaceutical company,"
said Ira Loss, a senior health-care analyst at the research firm
The legislation, which still has to be signed by President
Barack Obama, also gives drug makers 12 years of protection, or
exclusivity, to sell biologic medicines before facing the threat of
cheaper, off-brand alternatives.
Billy Tauzin, who led the industry's negotiations on health care
with lawmakers, said overall drug makers fare well. "While we're
not totally happy," Tauzin began, "we generally feel like it tracks
with out principles."
Sanofi-Aventis SA (SNY) Chief Executive Christopher Viehbacher
said in an interview that the impact of the legislation will be
neutral to slightly negative "but better for the industry than if
healthcare reform didn't pass."
Tauzin, head of the Pharmaceutical Research and Manufacturers of
America or PhRMA, and Viehbacher said getting protection for
brand-name biologics is among the important provisions for the
industry. Drug makers pushed hard to get 12 years of exclusive
market protection while the White House and some lawmakers wanted
to lower the protection to seven years.
Tauzin acknowledged, however, that drug makers will take a
"severe hit" in the form of fees on their profits and rebates
they'll have to pay the government. Tauzin is the outgoing
president of the Pharmaceutical Research and Manufacturers of
America, or PhRMA, the main lobby for the drug industry.
Such fees total about $80 billion under the bill passed Sunday
and would be divided among drug makers.
Still, many analysts say drug makers will end up recouping those
costs through new customers: The bill would provide insurance
coverage to an additional 32 million Americans.
"Chalk up another good round for Pharma and Biotech in health
care reform," began a note to clients Friday from Concept Capital,
a research firm.
Ken Tsuboi, co-manager of the Allianz RCM Wellness Fund, sees
the impact of bill, and its $90 billion in concessions over 10
years, as relatively minor in an industry that has annual global
sales of about $750 billion, with about $300 billion in the U.S.,
and margins close to 30%.
"I think that it is actually a pretty good deal for Pharma,"
The stocks of large pharmaceutical companies generally have
trailed the overall market over the past year. That likely reflects
the projected impact of losing patent protection on several key
drugs in coming years, more so than any concerns related to the
Tauzin said the industry is concerned that a federal advisory
board created by the legislation would end up limiting patient
choices. He added, however, that it's too early to tell exactly how
the board would operate.
Another plus for drug makers is a proposal to close the
so-called Medicare "donut hole"--the gap in coverage that forces
seniors to pay out of pocket for drugs after a certain threshold is
reached. Closing this gap is an industry priority; it will likely
increase sales for drug companies because people frequently stop
taking their medication or switch to generics once they have to pay
for them out of pocket.
Miller Tabak analyst Les Funtleyder took a sanguine view of the
bill's impact on drug makers.
"When you dig into it, the fact remains that more people are
going to get covered and there doesn't seem to be regulation in
costs," Funtleyder said. "If you have more people and limited cost
control, that is good for the sector."
-By Jared A. Favole, Dow Jones Newswires; 202-862-9207;
(Peter Loftus and Thomas Gryta contributed to this report)