A number of drugmakers have warned about the financial effects US healthcare reforms will have on their finances but Merck & Co shares have risen after the company said that while revenues will be hit, it is still confident about reaching its profits target.
As the results season got into swing last week, companies such as Eli Lilly, Johnson & Johnson, Abbott Laboratories and Amgen said the reforms will hurt sales and Merck has acknowledged that it too will suffer, ahead of presenting its financials on May 4. For the first quarter of 2010, Medicaid rebates and other impacts will reduce revenue by $35 million and the company also plans to take a non-cash charge, related to the elimination of a tax benefit for retiree prescription drug coverage, of $150 million.
For the full year, Merck anticipates that healthcare reforms will reduce revenue by $170 million and by $300-$350 million in 2011. However the company continues to believe it will enjoy “high single-digit” annual growth between 2009 and 2013.
Meantime,analysts have been looking at which firms are most likely to suffer as a result of the reforms. At Datamonitor, Tijana Ignjatovic noted that companies with a high US sales dependency in their prescription pharma business – Forest Laboratories, King Pharma, Cephalon, Amgen and Shire can be expected to be amongst the biggest losers.
She added that larger players such as Bayer, Sanofi-Aventis, Novartis and Roche will suffer a reduced negative impact on their 2010 sales performance, due to their relatively low focus on the US market. Dr Ignjatovic said that reform law measures that are set to benefit pharma by increasing the number of insured individuals will start to have an impact only in 2014. Next year, “pharma will face further downward pressure on drug prices when the 50% discount for patients in the Medicare Part D ‘doughnut hole’ is enacted.
She concluded by saying that with the sector already facing a major negative impact of the patent cliff in 2011, “reform law provisions that will have a negative impact on the sector could not come at a worse time. Companies will have to weather a perfect storm before they can see much of the upside of reform law”.