Are Merck, Pfizer Really Winning from Healthcare Legislation?

• Date: March 24, 2010
• Source: Admin

The new healthcare legislation will bring a winning fortune for the big pharmas, believe analysts. However, their belief may get a toss as the ‘win’ of the two companies could be elusive to a large extent.

Healthcare Bill and Lifestyle Drugs

According to Pfizer and Merck, they cannot sell drugs to patients who do not go to doctors for treatments. Although cholesterol and diabetes cannot be labeled as medical emergencies, still without doctors’ approval, pharma will not be able to sell their drugs to the patients.

Now that the new healthcare legislation has increased opportunities for the insured people, analysts believe that the frequencies of doctor visits will increase visibly, which will result into increased selling of more lifestyle drugs like Pfizer’s Lipitor and Merck’s Vytorin. Moreover, manufacturing cost of most of the lifestyle drugs is extremely low compared to R&D and marketing expenses; increased volume could easily protect operating margins from lower prices. Therefore, profit will be on high for the big pharmas.

However, analysts’ beliefs may not prove right because insurance costs for both employees and individuals will continue to increase exponentially until 2014, so the number of insured could actually decrease in the short term. Additionally, generic competition from other companies will also increase by that time leaving a very small room for big pharmas like Pfizer and Merck for profit.

Healthcare Bill and Biological Based Drugs

In the new healthcare bill, patent protection of the biological based drugs has been extended which analysts find profitable for the pharma. But now scrutinizing this situation a little more can give a better picture. Development difficulties of these medicines coupled with government’s initiative to start doling out subsidies in 2014 will surely going to snatch the desired profit of the pharmas.

Therefore, still the question remains “how profitable is going to be the healthcare bill for the pharmas?” Let the coming days find out the right answer.

Source: http://seekingalpha.com/article/195143...