Analysis: Pharma may gain in elderly cap

24 June 1999 18:14  [Source: ICIS news]

HOUSTON (CNI)--Analysts Thursday were speculating that increased sales could outweigh falling margins from any US effort to cap drug costs for the elderly and they rank Warner-Lambert as the company most vulnerable to proposed reforms.

Commenting on recent hearings in the US Congress, Salomon Smith Barney called it a "political beauty contest" and a "non-event."

Meanwhile, Merrill Lynch (ML) predicted: "Volume increases could overwhelm negative pricing impact. It is important to remember that a reduction in prescription drug prices, both with or without associated prescription benefit coverage, is likely to be associated with price elasticity and increased utilisation."

But both firms agree that debate will likely continue until after the 2000 presidential election. And they both ranked Warner-Lambert as the company with most exposure to a government mandated discount on prescriptions for the elderly.

Overall, ML speculated that the worst case for pharmaceutical companies would bring a 6% decline on revenues if all Medicare recipients can buy their drugs at a 40% discount from the manufacturer's price. On a best case scenario, however, ML feels the sales impact could turn positive with volume increases balancing the lower sales.

Based on estimated sales for 2002, Smith Barney said impact from price controls would prove highest for Warner with 48% of its prescription drugs sold to the elderly in the US. Behind Warner, Smith Barney ranks Pfizer with a 39% exposure, Merck with a 38% exposure and Bristol-Myers Squibb with a 36% exposure.

By: Gary Taylor
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