|Members of the Occupy Wall St movement hold protest signs aloft outside a Pfizer building during a "national day of action" demonstration by the movement in New York February 29, 2012. (Lucas Jackson/REUTERS) |
LOS ANGELES - Pharmaceutical companies, which were spared some of the more sweeping regulations in President Barack Obama's healthcare overhaul, could come under more pressure if the U.S. Supreme Court strikes down part or all of the 2010 law.
Drugmakers agreed to pay about $100 billion over 10 years in excise taxes and discounts on medications under the law, but were expected to benefit overall as more than 30 million uninsured Americans get health coverage.
"The law was a modest positive for them in terms of growth in volume and the ability to charge higher prices," said Dan Mendelson, chief executive officer of consulting firm Avalere Health and a former associate director for health for the U.S. Office of Management and Budget.
But if the court overturns the law, drugmakers could again become targets in the debate over how to reduce a ballooning U.S. deficit, industry experts say.
Economic concerns could revive ambitious proposals to cut medical costs by reimporting cheaper drugs from other countries, cutting pharmaceutical prices for the government-run Medicare and Medicaid health plans, and even replacing private insurance with government-funded plans.
"It could be a lot worse for pharmaceutical companies," said Les Funtleyder, portfolio manager for Miller Tabak & Co. "There will be healthcare reform in America because the economic situation will require it sometime in the next 10 years."
At the same time, the pharmaceutical industry is grappling with an unprecedented wave of patent expirations on top-selling drugs like Pfizer Inc's cholesterol-lowering Lipitor. More than $70 billion in revenue from brand-name medicines will have lost patent protection between the second half of 2011 and the end of 2015, according to ratings agency Fitch.
Republicans in the House of Representatives are already questioning whether the industry received too sweet a deal under the healthcare law, and have started an investigation into negotiations between drugmakers and the White House. Goals of the probe include finding out whether a deal was made between pharmaceutical companies and the Obama Administration in return for publicly supporting the law, according to officials at the House Committee on Energy and Commerce.
The Pharmaceutical Research and Manufacturers of America, a trade group whose members include Amgen Inc, Eli Lilly & Co, Merck & Co and Pfizer, has come under scrutiny in the probe.
"We are certainly hopeful for the court to provide clarity on the law," said Matt Bennett, a spokesman for the group.
SUPREME COURT EXPECTED TO ACT IN JUNE
Parts of the Affordable Care Act have been challenged by 26 states. Action by the Supreme Court, expected in June, could include striking down one or more specific provisions within the law or overturning it completely.
Full repeal of the law could prompt a short-term rally of 3 percent to 5 percent for drugmakers' shares as investors account for the annulment of taxes and a delay in generic competition for profitable biotechnology medicines, said Michael Meyers, chief executive officer of hedge fund Arcoda Capital Management.
But longer-term risks would increase. "The devil that you know in this case is probably better than the alternative for them," Meyers said.
For example, the government could take a new look at how the drugs it pays for can help reduce a budget deficit that stood at $1.3 trillion in the fiscal year that ended in September. Healthcare spending in the United States, at 18 percent of gross domestic product, is the highest in the world.
Since the healthcare law's passage in March 2010, the NYSE Arca Pharmaceutical index has risen 6 percent, while the Standard & Poor's 500 stock index is up 14 percent. The more volatile Biotech index has gained 19 percent.
"The presumption is that if the government negotiated as a bloc ... they would have much more bargaining power, similar to what you see in Europe," Miller Tabak's Funtleyder said.
Those trends are already gaining ground. A 2011 analysis by consulting firm Deloitte found that Kaiser Permanente, the nonprofit health plan that insures nearly 9 million Americans, placed reimbursement restrictions on more than 130 of the world's 315 top-selling drugs. The German healthcare authority put limits on 36, and the British national health system, on 37.
Others see elements of the law surviving, such as a measure that calls for more real-world evidence of a new drug's superiority over other treatments to support prescriptions and reimbursement. That could chip away at the advantages of novel, higher-priced products that benefit from aggressive marketing.
"Even if the legislation is overturned, much of the change that is in place is going to continue as a result of market forces," said Terry Hisey, head of Deloitte's life sciences practice. "This train has left the station."
Hospital payments by Medicare, the government health insurance plan for the elderly, have already been tied to treatment results rather than the number of services patients receive. There is talk of a similar reimbursement structure for nursing homes.
Even a provision to bring cheaper generic versions of complicated -- and expensive -- biotechnology drugs to the market could still survive the law's invalidation. The Food and Drug Administration would probably urge makers of such biosimilar drugs to move ahead with plans to file for approval through the existing regulatory process.
All of these practices could come to haunt the pharmaceutical industry, as they will put pressure on prices without broadening the pool of Americans with health coverage to pay for treatment.
"If the law is repealed," said Avalere's Mendelson, "but Congress, for fiscal reasons, says all of the offsets are going to be reinstated, that would be the most difficult outcome for the pharmaceutical industry."
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