As he signed the $787 billion US economic stimulus package into law this week, President Barack Obama declared: “we have done more in 30 days to advance the cause of health care reform than this country has done in an entire decade.”

The process began at the beginning of this month, when Pres Obama signed legislation to reauthorize and expand the State Children’s Health Insurance Program (SCHIP), and described this as “the first step” to achieving universal health coverage in the US. Passage of the bill was also “a major political victory for Obama, because President George W Bush vetoed two similar bills in 2007,” notes Sandra Reynolds, senior pharmaceutical strategy analyst at research firm Datamonitor.

In a new analysis, Dr Reynolds comments that Pres Obama’s proposals for universal healthcare coverage, continued support of R&D tax credits and increased investment in scientific technology and personalized medicine are all positives for the pharmaceutical industry. However, the negative side of his proposed reforms lies with the planned implementation of comparative effectiveness research and direct drug price negotiations with government payers, driven by the need to support extended public healthcare costs, and she warns that this could signal an end to free market pricing in the US public healthcare system.

The good news for pharma is that when Pres Obama’s universal healthcare programme is introduced it will: - increase demand for drugs, both branded and generic; - reduce the need for free drug programmes, due to universal health care coverage; and - boost pediatric drug and vaccine programmes, through the extension of SCHIP.

The bad news: - generic drug use has increased in the US, growing 5.4% by volume from 2007 to 2008 but nowhere near the extent required to support universal healthcare. Consequently, there will be greater efforts to incentivize generic prescription over more expensive brands within the next four years.

The new administration hopes to achieve this through: - a ban on generic settlements, outlawing agreements between innovators and generics companies which delay the market entry of generics; · introduction of a biosimilars pathway aimed at cutting the costs of expensive biologic drugs; and - re-examination of marketing exclusivity - with innovative drugmakers pushing for 14 years and generics firms believing that three to five years is adequate, market exclusivity will probably be initially at least 12 years, Dr Reynolds forecasts. Safety will be of the utmost importance to any biosimilars pathway programme and, if it proves successful, then marketing exclusivity for branded biologics may decrease, especially if healthcare costs continue to rise in a weak US economy.

Overall, while drug volumes are expected to increase by 15.8% as a result of coverage of the previously uninsured, earlier and faster brand erosion is anticipated at patent expiry. With the introduction of biosimilars expected within the next five years, this is further set to impact branded drug revenues, she says.

The uncertain news for pharma: - who will replace Tom Daschle as nomination for Health and Human Services (HHS) Secretary? - will there be a lift on the ban of re-imported drugs?; and - when will price negotiation between drugmakers and Washington be introduced?

Tom Daschle’s nomination withdrawal from HHS Secretary was a major blow for Pres Obama, because his combined political, policy and legislative experience made him first choice. However, it is hard to imagine that this setback will alter Pres Obama’s determination to reform healthcare - at best, it may buy some more time for the industry, says Dr Reynolds.

Drug re-importation would lead to big revenue losses for the industry, given that drugs sold in the US are priced at an average 67% premium to the rest of the world. During his campaign, Pres Obama was very supportive of lifting the ban, but with several high-profile safety scares regarding medicines manufactured abroad, there has been less emphasis on this since he took office. “Furthermore, if the ban were to be lifted, all drugs re-imported would have to passed by the Food and Drug Administration (FDA), an agency which is already working at (if not beyond) its maximum capacity,” says Dr Reynolds.

As such, re-importation will not happen until FDA reforms are in place, and public confidence in the agency is restored. “The appointment of a permanent commissioner will be the first major step to reform,” she says.

The proposal that the industry will most strongly oppose is the introduction of direct price negotiation with Washington, pointing out that companies already negotiate drug prices with insurance providers for public plans and offer significant discounts. If introduced, this change could potentially have a dramatic affect on profits as the government could literally dictate drug prices, leaving the industry no option but to accept or lose out on one of its most lucrative markets.

Another proposal, the introduction of comparative effectiveness research to help cut the wastefulness of the US healthcare system, could be a tough sell for Pres Obama with physicians and patients. Furthermore, Washington will need to ensure that the system is based on credible scientific data, as any controversy will only lead to confrontation, delays and ultimately failure, warns Dr Reynolds.