Volume gains sweeten US pill

Big Pharma will provide somewhat more in savings than the original $80bn agreement under the latest version of healthcare reform but the bill passed by the House of Representatives creates 32 million more customers for the industry’s products.

Crucially, the government will not impose drug price caps.

“The amount they are paying, essentially in a tax, over a five to 10 year period is potentially more than offset by the increased volume that they have coming in,” said Ben Yeoh, an industry analyst at Atlantic Equities.

“It looks neutral, within forecast error,” he said. “There’s relief that something has got through that drugmakers can live with.”

But this would be counteracted by a sharp increase in the number of insured patients and enhanced revenues from the Medicare programme for the elderly, a brokerage said. Drugmakers were unlikely to revise long-term earnings outlooks on the back of the news, it added.

Ending uncertainty
Under the complex deal hammered out in Washington, the drugs industry will have to pay fees of $3bn from next year – rising to a peak of $4.2bn in 2018 – and provide discounts to help ensure Medicare coverage.

Savvas Neophytou, an analyst at Panmure Gordon, put the cost to the sector at between 1.5 to 2.2 percent of EPS per year for the first five years but said the end to uncertainty should help sentiment.

The vote ended a year-long political battle with Republicans over the vexed issue of healthcare reform and achieved a goal that has eluded many presidents for a century – most recently Bill Clinton in 1994.

“There’s a sense that if no health reform had passed this time around, then everything would have got a really big kicking in three or four years time because, inevitably, something had to give,” said Jack Scannell, an industry analyst at Sanford Bernstein.

Lawmakers also rejected an initial plan to end lucrative “pay-for-delay” settlements between brand-name and generic drugmakers – a win for both groups of manufacturers.

The biotechnology industry, too, has reason to be thankful that the legislation was not worse.

A big fear for biotech investors had been that government would give generic alternatives a fast route to the market. In fact, makers of biotech drugs like Amgen Inc and Roche Holding AG’s Genentech unit will still have a 12-year period of exclusive sales before facing competition from generic rivals.