Analysis: Drugmakers face more scrutiny of discordant U.S. prices

Fri May 10, 2013 11:20am EDT
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By Deena Beasley

LOS ANGELES (Reuters) - The world's biggest drug makers have for years enjoyed rich premiums for their medicines in the U.S. market. Those days may be coming to an end.

Companies like Pfizer Inc and AstraZeneca have grown dependent on higher U.S. prices to generate profits as generic rivals to their best-selling medicines enter the world market, Europe's government-run health plans clamp down on spending and sales growth in emerging markets stutters.

Now President Barack Obama's health reform law will bring more scrutiny of spending on drugs and medical care in the United States. As a result, healthcare experts say, downward pressure on drug prices will begin to mount within three to five years.

That not only presents a risk to the robust profits generated by the industry, but could influence the amount of money companies chose to invest to develop innovative medicines.

Drugmakers' reliance on the U.S. market "is the greatest risk to the sector," said Rajiv Kaul, portfolio manager of Fidelity Investments Select Biotechnology Portfolio. "Healthcare pricing is going to get tougher. It would be foolhardy to think otherwise."

The generic threat has already made drugmakers more dependent on the premiums they can charge for newer medications, widening the gap between branded drug prices in the United States and the rest of the world.

Research group IMS reported on Wednesday that in 2012, U.S. spending on drugs fell for the first time in more than 50 years - down 1 percent to nearly $326 billion - due to a new wave of cheaper generic drugs that are taking away sales from blockbuster brands like Lipitor and Plavix.

But U.S. sales of prescription drugs still account for more than a third of worldwide sales, compared with a share of around 24 percent for Europe.   Continued...

A woman walks past the Pfizer Inc. headquarters in New York, January 31, 2013. REUTERS/Brendan McDermid