We’ve heard endless whining by Big Pharma and its water carriers in Congress about how President Obama’s plans to reduce prescription drug costs will all but destroy the U.S. pharmaceutical industry.
An investment analyst who covers the industry thinks otherwise.
Jason Napodano, in a report for Zacks Investment Research published earlier this month, writes:
When President Obama’s administration released the proposed budget for the upcoming fiscal year, drug stocks quickly dropped. Fears of socialized medicine, or “Hillary-Care 2.0” turned investors away from the sector.
Was the drop warranted? … The net result of healthcare reform is likely to be limited on big pharmaceutical earnings … At this point, the fear of healthcare reform seems entirely more bark than bite.
Napodano walks step by step through the healthcare provisions in the president’s budget and concludes that the negative impact on the pharmaceutical industry will be minimal. He writes specifically about the anticipated impact of proposed legislation that will allow Americans to buy drugs from licensed Canadian pharmacies:
A consortium of 4 Senators (Dorgan D-ND, Stabenow D-MI, McCain R-AZ, and Snowe R-ME) introduced in early March 2009 the, “Pharmaceutical Market Access and Drug Safety Act.” The bill would allow U.S.-licensed pharmacies and drug wholesalers to import FDA-approved medications from Canada, Europe, Australia, New Zealand and Japan – areas where drug prices are on average 35% to 55% lower than in the U.S. The legislation would also allow individual consumers to purchase prescription drugs for personal use from safe, reliable, FDA-inspected Canadian pharmacies.
The Congressional Budget Office (CBO) estimates the bill would save American consumers $50 billion over the next decade, including more than $10 billion in federal government savings. If we assume the savings are linear, or average roughly $5 billion per year, that represents approximately 2% of the total U.S. $250 billion pharmaceutical market. The EPS impact from a 2% haircut to the top-line of each pharmaceutical company, assuming drug reimportation hits everyone equally, is extremely manageable, and will most like average no more than 1% to 2% per company if enacted.
That’s right — while the legislation would be a huge relief for seniors, the uninsured and others struggling with prescription drug costs, it’s a drop in the bucket for Big Pharma.
Shed no tears for the pharmaceutical industry. They’ve been enjoying double-digit profits on your back for far too long.92