Mixed Outlook for Pharmaceutical Industry following US Healthcare Reform

Mixed Outlook for Pharmaceutical Industry following US Healthcare Reform

Immediate market dip due to imposed rebates and discounts
Rising revenues from 2015 as volumes increase
Cost-strain on private and public payers in the long run will drive market down

Tijana Ignjatovic, strategic healthcare analyst at Datamonitor, believes that the House of Representatives passing the biggest reform of health care in the country for 40 years is a double-edged sword for the pharmaceutical industry.


The industry will be grateful for some certainty on the future market outlook and, overall, there is a strong belief that the pharmaceutical industry will benefit from the reform.

However, whilst many factors will determine the financial impact of proposed US healthcare reform on the branded pharmaceutical industry, Datamonitor believes that there are potential short and long-term dangers.

In the short term, it is likely that imposed discounts and rebates, in addition to raised industry fees will lead to a market dip. This couldn't come at a worse time for an industry facing patent expiries in 2011 that are set to wipe tens of billions of dollars off annual revenue.

However, from 2015 onwards, these negative effects will be offset as revenues begin to rise, driven mainly by the increase in the number of insured people and the resulting increase in drug consumption.

Whilst this will be beneficial in the medium-term greater government participation in provision of healthcare will inevitably ensue. In addition, growing cost strain on both public and private payers will lead to increased negative pressures on the pharmaceutical industry in the US, decreasing the overall value growth of the market. It cannot be ruled out that unfavourable measures such as drug re-importation and Medicare Part D price negotiations may be introduced as healthcare costs start to bite.

Generic providers will also be questioning the benefits of the reform, despite a highly favourable outlook at the beginning of the process and President Obama's pro-generics stance. Although the promise of higher sales volume from more insured patients and growing cost-containment pressures will be seen as a great positive,

the 12 years exclusivity given to branded biologics, which is substantially longer than the usual 5 years given to small molecule drugs, will be a concern.

With the introduction of a ban on refusal of insurance coverage for pre-existing conditions and removal of annual or lifetime coverage limits, the health insurance industry will be hit hard by reform, with its profitability in jeopardy despite the increase in the number of customers.


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