Drug stocks suffer on Obama budget

Big Pharma says, "Thanks, Mr. President." Drug stocks are suffering after President Obama released his proposed budget yesterday, because of its provisions for possible re-importation of less expensive meds and cuts in payments to private insurers and drugmakers. "The clear message from the opening salvo is that Democrats intend to rein in healthcare spending and increase government's role as a major purchaser and policy-maker," Jack Gorman, analyst at Davy Stockbrokers, told MarketWatch. "This increases the pressure on big pharma to both accelerate cost efficiencies and to source new, innovative products to drive revenue growth."

Meanwhile, drugmakers weren't happy. An Eli Lilly spokesman estimated that approval of the Obama healthcare plan would cost Lilly "several hundred million" dollars in sales on top-selling antipsychotic Zyprexa and other pharma products, The Street reports. The big worry? A boost in Medicaid rebates to 22 percent from 15 percent, plus a decline in payments to pharmaceutical and other health-insurance companies.

Plus, there's the specter of re-importation. According to the Washington Times, the administration's budget proposal for Health and Human Services includes a provision that "supports the FDA's new efforts to allow Americans to buy safe and effective drugs from other countries." That's not much in the way of detail, but you can be sure those words will come in for heated debate when Congress starts the budgeting process.

- read the MarketWatch story
- see the coverage at The Street
- check out the Washington Times article