Why the US mid-term elections matter to the Canadian pharma industry

Take the Pill, originally uploaded by messyatwork

The upcoming US Congress and Senate mid-term elections will have far-reaching, unforeseen consequences, whatever the result may be. The President and CEO of the Canadian division of a top 5 pharma company once told me that he was personally and professionally far more interested in American politics, because it had a greater impact on his bottom line than anything happening locally.

Enough promises and speculations have been made to convince the broader pharma industry in the US to hedge their bets and throw the majority of their support (read $) behind the Republican Party.

As of September, the industry had collectively donated $8.7 million to various campaigns, the majority of which went to the Republican Party. Unsurprisingly, the biggest recipient of these donations (over $450,000) was the drafter of the current Medicare drug-benefit law (Medicare Part D), incumbent Rick Santorum (R). (A possible indication that the industry must think favorably of this law?).

It is this law that is the biggest issue driving the pharma industry’s interest. Medicare Part D, is the federal program that absorbs the costs of prescription drugs for Medicare beneficiaries in the US. Estimates put the total cost of the program in 2006 between $37.4 and $48.6 billion.

But one of the most contentious issues about this program is that the federal government it is not permitted to negotiate for more favorable rates on drugs. Alternatively, the Veterans Administration is allowed to negotiate directly with drug companies, which has resulted in significant discounts for their medication – sometimes even 50% or more.

House Democratic Leader Nancy Pelosi has vowed to immediately revamp the law to allow government to negotiate prescription drug prices with drug companies, should Democrats take control after the mid-term elections. The obvious consequence being a cut into pharma companies’ profit from Part D.

The big pharmaceutical companies have several other reasons to dread a Democratic takeover in Congress.

• In addition, Democrats have called for a more stringent drug-approval process at the FDA that could toughen the drug-approval process.
• Congressional Democrats, and even some Republican gubernatorial candidates (like Charlie Christ in Florida), propose lifting a ban on the broad-scale re-importing of inexpensive drugs (from Canada).
• Democrats have also accused instances of conflicts of interest and are likely to scrutinize relationships between the industry and politicians.

So what does this mean for Canadian Pharma? Here are my initial thoughts:

• The US is the primary target market for Canadian biotech and pharma. So payer decisions will directly effect compensation and the bottom line of companies here.
• Reduced revenue of Big Pharma will lower discretionary spending available for licensing deals and M&A activity, which is a primary exit for many Canadian pharma and biotech.
• Reduced revenue potential could have lower valuations of early stage pharma and biotech.
• Changes to importing Canadian drug law will create new market potential here, but may also have negative consequences when big pharma tries to limit or hinder the practice.
• Increased regulatory scrutiny will increase approval times, which would seriously hinder early stage biotechs here. Longer approval times will extend the period which companies aren’t generating revenue. It will also shrink the amount of time a company will have patent protection on a particular drug.

What do you think?
Whichever direction the political winds are blowing come election day on Nov 7th, those in pharma industry on both sides of the border should have even greater interest in the outcomes this year.

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