As Obamacare stands pharma breathes sigh of relief and looks to November

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With the US Supreme Court’s surprise ruling to uphold President Barack Obama’s controversial 2010 healthcare reform act in its entirety, the focus now shifts to any Republican moves to repeal all or part of the law – something that realistically will hinge on the outcome of the November presidential election.

The law is by no means of universal benefit to the pharma sector, but at stake were several industry-popular provisions, in particular the Medicare part D doughnut hole closer and the biosimilars pathway that in effect gives biologicals 12 years’ marketing exclusivity. While many see the Supreme Court’s ruling as only the start of the battle and senior Republicans have vowed to continue pushing through legislation for a repeal, for the time being the industry can breathe a collective sigh of relief and focus on the more pressing matter of developing new drugs.

Fretting

The pharma and biotech industry had fretted over the uncertainty and disruption that even a partial repeal would have brought in the run-up to the presidential election. Closing the doughnut hole, a coverage gap that had left many seniors exposed to paying the full cost of their drugs, had been funded by an estimated $80bn contribution from pharma, an investment that is now safe.

The narrow 5-4 majority verdict came as a surprise to many. By far the likeliest outcome was thought to have been a ruling against the individual mandate to purchase health insurance (BIO 2012 – Industry fears turbulence from US healthcare reform ruling, June 20, 2012). The mandate requires Americans to have health insurance coverage even if they are not part of an employer-sponsored healthcare plan.

Such a partial repeal could have had the knock-on effect of many of the mandated insurance coverage extensions unravelling. Moreover, UBS analysts said the chances of the entire law being struck down were as high as 40%.

Status quo prevails

In the event, the general verdict from pharma and biotech investors following yesterday’s ruling was “no change”, and accordingly share prices responded to other key events, such as clinical setbacks, which led to a selloff in companies including Anthera, Synta and Vertex.

The most obvious beneficiaries - listed hospital groups - were up strongly on the ruling, with HCA Holdings’ stock up 11%. There was a muted response from medtech, for which the healthcare reform act is clear negative because of its implementation of a 2.3% excise tax on medical devices. However, this was likely already priced into stocks, and many companies will simply pass this cost along to customers.

The challenge to the Patient Protection and Affordable Care Act was based around its constitutionality. The law having been allowed to stand, the threat now will come from congressional action, as the Republican caucuses will renew efforts to repeal and de-fund it. But such efforts will come to nought as long as the Senate remains under majority Democrat control.

Although the chances of Republicans claiming back the Senate are high at present, President Obama would have to sign any repeal or de-funding into law, and accordingly the outcome of the closely run November 6 election remains key to the reform’s future.

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