Health-reform rebates hit more drugmakers' earnings, forecasts

More drugmakers are joining the charge from healthcare reform. When Eli Lilly reported earnings on Monday, it took a hit against earnings--and revised its revenue projections for 2010 and 2011 downward. By hundreds of millions. That move set industry watchers abuzz: Would other drugmakers take charges against earnings? Would they cut their forecasts?

The answers, we know now, are yes and yes. Gilead Sciences, which reported results yesterday, said reform cost the company $25 million in sales for the quarter, and it cut its sales projections to a maximum of $7.5 billion, down from a max of $7.7 billion. Biogen Idec recorded a $13 million Q1 charge from healthcare reform. Abbott Laboratories took a charge of $60 million and lowered its EPS guidance to $4.13 to $4.18 a share, down from $4.20 to $4.25.

And that's just the beginning. In the wake of Lilly's lowered forecast, analysts pointed out that the company has a significant exposure to Medicaid; new Medicaid rebates are built in to the healthcare reform law. Other drugmakers that sell lots of meds to Medicaid will suffer the most, likely predicting a hit on sales several percentage points higher than the 1 percent to 2 percent analysts originally expected.

Lilly's charge, just for comparison's sake, came in at 12 percent. It gets some 10 percent of its sales from Medicaid patients, Leerink Swann analyst Seamus Fernandez told Bloomberg. That's among the highest proportion of Medicaid exposure in the industry. Bristol-Myers Squibb and AstraZeneca have similar levels of exposure, Fernandez said. Meanwhile, Barclays Capital analyst Tony Butler calculates that Abbott depends on Medicaid for 5 percent of sales, as does Merck; Pfizer's at 4.5 percent.

- see the Bloomberg coverage
- get more from the Boston Business Journal
- read the Barron's piece

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