Ask Lazlo

life sciences… only

The Day After

The United States of America went to the polls yesterday to elect their new President.  Now that all the votes have been cast and it is apparent that the next President will be Barack Obama, it is time to crunch the numbers and determine what effects (both positive and/or negative) can be expected in future for the life sciences industry.

The Obama-Biden Healthcare Plan has four points of focus:

1.     Invest in Health Information Technology Systems

2.     Improve Access to Prevention and Proven Disease Management Programs

3.     Lower Costs by Taking on Anticompetitive Actions in the Drug and Insurance Companies

4.     Reduce Costs of Catastrophic Illness for Employers and their Employees

 

No one can forecast for certain what effect this will have for American patients, providers, and private industry, but some trends should be apparent.  The main game-changers from the above list are points 3 (for pharma and biotech) and 4 (for insurance companies and businesses).  Let’s first focus on point 3.

In no uncertain terms, the President-elect Obama contends that high prices for prescription medications are a result of unfairly high profit margins in the pharmaceutical industry and that the way to improve the affordability and accessibility to medications for the United States is to place restraints and pressure on the pharmaceutical industry’s rate of return.  

One would expect Big Pharma to be remarkably hostile to such pronouncements especially given the results from a recent Boston Consulting Group (BCG) analysis reported in the Wall Street Journal that the pharmaceutical industry could expect a $10-30 billion loss in revenues.  Yet the pharma industry’s campaign donations to the Democratic Party have been markedly increased this election cycle (51% for Dems vs. 49% for GOP).  Why?

I don’t know.  Big Pharma will definitely take a hit under Obama.  But I’ll give you 2 Cons and 2 Pros that might shed some light.

Con #1: No more “Viva Viagra!”  The plan put forth by Obama-Biden calls for greater regulation in direct-to-consumer (DTC) advertising.  This marketing restraint will probably be a good thing for humankind, but I can’t imagine it improving sales for any of the big drugmakers.

Con #2: Three words… Generics, Generics, Generics. The Obama-Biden plan will also place a greater emphasis on generics.  Whether this means creating a more favorable legal environment for generic “competitors” or developing a quicker-to-generic timeline for brand name drugs, remains to be determined.  Again, this is probably a good thing for patients, as generic drugs (for many indications) are almost always a more cost-effective treatment.  Good I say in the short-term; in the long-term I’m not so sure how any of this plays out.  Government intervention in the markets is “generally” believed to stifle innovation.  And innovation is the life force of biomedical research.

Pro #1:  Longer Lines = More Customers.  Business owners love long lines because it means high demand.  This assumes though that the business is efficiently providing for or servicing its customers.  Otherwise, the long line just means inefficiency, lost opportunity, and unhappy customers.  In the case of the pharmaceutical industry, the government (Medicaid/Medicare) is one really big customer (paycheck) that forms a really long line.  And under the Obama-Biden Plan, that line will get much, much longer and that paycheck (though profit margins will likely be cut) should increase as well.

Pro #2: Funding for the FDA.  One of the less talked about points in the healthcare discussion is the role of the underfunded FDA.  Fiscal conservatives and private industry proponents are loath to publicly endorse federal spending and reluctant to support federal regulation.  But the healthcare industry is so intimately entwined with the FDA, that all involved parties need to unite to ensure the health and well-being of the FDA (aka major rate-limiting factor).  Big pharma money realizes that a fully funded and functioning FDA is necessary for continued growth and innovation in the life sciences.

Yes, the Obama-Biden Healthcare Plan will give the pharma industry a haircut, but it was necessary and inevitable anyway.   

 

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November 5, 2008 - Posted by | Uncategorized

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