Thursday, March 25, 2010

Why the Dems did the BIG %$^ Deal

Some of you are still wondering why the Dems proceeded with Healthcare Reform.  Political suicide you might say.  Well... not exactly.  A Monday CNN poll shows that the Dems actually might have voters on their side.  What? .... What?

Have a look at the numbers from this CNN Opinion Poll Release Monday, March 22nd.  Go to the link for the actual questions.

When asked if respondents favored or opposed healthcare reform...

Favor                            39%
Oppose                         59%
No Opinion                     2%

So most oppose healthcare reform... but...

When those opposed where asked why...

Favor                                       39%
Oppose, not liberal enough        13%
Oppose, too liberal                    43%
No opinion                                 5%


Favor + oppose not liberal enough        52%
Oppose, too liberal                             43%

How many folks who oppose healthcare reform as it is not liberal enough would vote Republican?

That's what I thought.  Dems have the voters on their side.

Tuesday, March 23, 2010

Healthcare Reform - Pharma's Big Win

Game over.  Dems will enact sweeping healthcare reform.  President Obama to ink the Senate version of the legislation into law today.  The Senate will then go through the reconciliation process to make the tweaks desired by the House.

In part, due to a masterful body of public policy work by Billy Tuazin (PhRMA) and Pfizer's Kindler, the legislation will be beneficial for Pharma over the next few decades.  Beyond that, however the jury is out.  Pharma succeeded in avoiding the big fear of Medicare price negotiation, parallel imports into the US and walked away from the "evil empire" label that pasted insurers through out the debate.  Of very significant impact, the legislation will fill the proverbial Donut Hole and insure more than a few previously uninsured Americans. It's this later point which will be the focus of this blog.

Insurance for the uninsured will kick into play in 2014.   The CBO has projected that Obama's plan will insure 32 million, largely younger individuals,  previously uninsured and further more mandate a pharma benefit.  The key to understanding the lift for pharma that will come from this aspect of the legislation is understanding the "insurance effect", a well known economic phenomena where individuals consume more healthcare when coverage is extended thereby lowering out of pocket costs.  Working the numbers (see earlier post for details, although here I used the higher CBO number for those obtaining insurance) I estimate insuring the uninsured could lift Pharma revenue by $10 billion per year or about a 3% revenue lift for the overall market. 

Call your broker.... while the impact on Pharma's top line seems minor, the impact on the bottom line will be substantial. Upwards of 14% will flow to gross profit and in turn flow to net income as companies take on little additional cost to capture the incremental revenue.  It's a freebie.  

Take Pfizer for example, a 3% lift in revenue to the roughly $50 billion in top line revenue in 2009 will mean a $1.5 billion revenue lift (actual lift will depend upon Pfizer's drug portfolio mix).  Assuming a 20% dost of goods sold, that brings $1.2 to the bottom line (assuming HC Reform simply expands the size of the US market which results in little to no increase in cost structure).  Pfizer reported $8.6 billion in net income.  So adding $1.2 billion increases this to $9.8 billion or a whopping 14% increase in earnings.   (of course this will be offset by the other "contributions" Pharma agreed to... reported to be $90 billion over the next 10 years, although my figures are a bit different, lower, more on this later).

Now be careful.  The impact will vary significantly by company.  Those companies whose portfolio of currently marketed drugs leans toward treating the elderly will have a significantly lower impact. Those companies whose portfolio leans toward the young will have a significantly greater impact. 

Sunday, March 21, 2010

Healthcare Reform Likely to Pass

CNN reporting at 4:15 PM on Sunday the 21st that Obama executive order brings Stupak holdouts into fold.  Dem Healthcare reform Likely to pass.

4:21PM on CNN... Stupak says "we are well past the 216 votes we need" (to pass Healthcare Reform).  Believes they had the votes before even bringing the Stupak group into the fold.

10:45PM.  Healthcare Reform Passes as Historic Vote Count Reaches 216 votes.  

More details later this week.

Thursday, March 18, 2010

Obma's Bill Update

The CBO today released it's estimate of the latest "reconciliation" version of the sweeping Healthcare Refrom Bill.  My view is that the odds of it's passage have tipped over 50%.  The CBO score has plenty in it for those Dems on the margins.  Strong coverage of the uninsured and more deficit reduction than prior versions. 

As far as Pharma is concerned, fees or taxes have jumped from $23 billion to $28 billion over the ten year tome horizon.  Pharma has appeared to dodge a bullet in the filling of the Donut Hole.  The bill still demands a 50% discount for drugs in the Donut Hole from manufacturers instead of a worried 75% discount.  In fact the discount for seniors will be 75% but the incremental 25% will be paid for by the government.  It also appears the legislation around the prohibition of pay for delay provisions has been dropped.

So it would appear that the $80 billion dollar pact remains largely in place.  Good news indeed as Pharma stands to gain from the expanded coverage of the uninsured and the long-term closure of the Donut Hole.  PhRMA apparently agrees with my assessment.  They are said to be spending $6 million in advertising in support of the legislation.

Check back for more analysis and perspective as things really heat up over the next few days!