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Tight squeeze

Moves by US Democrats to cut costs and empower Medicare could have a lasting effect on pharma profits

The pharma industry could face torrid times in 2007 as US Democrats mobilise plans to slash drug prices and take the industry to task on issues ranging from marketing to pharmcovigilance.

News of Democrat gains in the US mid-term elections saw shares in both US and European pharma companies tumble with Pfizer, Eli Lilly & Co and Novartis shares each dropping by 5 per cent. The UK stock market too gave a knee jerk reaction to the news that the Republicans had lost ground. Dealers marked down the major UK pharmaceutical shares, notably GlaxoSmithKline (GSK) and AstraZeneca (AZ).

Gains by the Democrats are likely to signal strong-arm tactics to resolve a number of issues they feel have been neglected by President Bush; Medicare and the apparent influence wielded by the pharma industry are topping their list.

Pricing is a bone of contention, not least because of the impact it has had on Medicare, and is likely to signal demand for lower prescription drug prices under the 2003 Medicare Act. Senior US Democrats, from Nancy Pelosi to Rahn Emanuel, have said that priorities following their respective victories include railing against pharma to reduce drug costs.

At the centre of the row lies Republican Congress' decision to block Medicare from negotiating drug prices when it gave the green light to the prescription drug benefit back in 2003. Democrats want to see more government intervention to slash prices. Currently, the federal government is forbidden to get involved in negotiating drug prices directly.

Pelosi, the much-publicised and glamorous 60 year old lady who leads the Democrats as Speaker of the House, has undertaken to lift the legislation which bars Medicare from bargaining for lower prescription drug prices. Medicare's increasing price tag must inevitably put more pressure on the US Congress to act to slow down soaring drug prices.

An additional problem facing pharma companies is the Democrats' desire to apply pressure to allow US citizens to buy less expensive medicines abroad, US pharma analysts predict. With this in mind, they could also try to lift the legal bar against importing cheap drugs from Canada and overseas via the internet.

The US pharma industry, which handed over 72 per cent of its political donations to the Republicans in the run-up to the mid-terms, has been well aware for some time of the Democratic threat to lower prescription charges.

If the Democrats successfully implement the changes they are pushing for, the impact on profit earnings for every major pharma company, US or otherwise, could be significant.

30th September 2008

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