Obamacare Chaos Conspicuous By Its Absence on Big Pharma Balance Sheets

Last Updated Apr 23, 2010 10:52 AM EDT

Conservatives hoping for a revolt by pharmaceutical shareholders over companies lowering earnings estimates due to healthcare reform will likely be disappointed. Reform is not wreaking havoc on company balance sheets. The long national nightmare of socialized medicine promised by Obamacare has so far been ... uneventful.

Most companies are treating the historic legislation as little more than a blip. The lack of drama is a reward for the industry and its lobby group, PhRMA, which supported President Obama in return for promises that his reforms wouldn't hurt them (in the form of untying the government's hands when it negotiates drug prices or competition from cheaper foreign drugs).

Members of the right-wing National Center for Public Policy Research showed up at shareholder meetings of Pfizer (PFE) and Johnson & Johnson (J&J) today to ask the CEOs there about their complicity with Big Gummint. Tom Borelli, a director at the NCPPR, said:

By working with President Obama, the Democratic majority in Congress, and left-wing advocacy groups, corporations such as Johnson & Johnson and Pfizer are undermining the liberty of all Americans ...
... as our British friends know, government control over health care budgets inevitably leads to limits on the purchase of prescription drugs. Pfizer's support for ObamaCare is not just bad for the company, but potentially could, over time, prove fatal to some Americans.
(Reform has not, so far, killed anyone.) According to Dow Jones Newswires, Pfizer CEO Jeff Kindler defended reform by saying the old system was "in many ways broken and not sustainable." Per J&J CEO William Weldon:
"I don't think there's any reputational damage," Weldon responded. "I think there's support for people to have accessible, affordable health care." His response prompted a round of applause.
Here's a summary of the effect of reform on the companies that have made Q1 2010 disclosures so far:
  • Eli Lilly (LLY): A one-time tax charge of $85.1 million coupled with higher ongoing governmental rebates, which are expected to reduce revenue by up to $400 million for the year.
  • J&J: Estimated impact to sales will be in the range of $400 to $500 million. "This amount is less than 1% of the 2009 sales for our total enterprise and approximately 3% of our 2009 pharmaceutical sales in the US." (J&J also included an analysis of how t believed reform would affect the industry as a whole.)
  • Amgen (AMGN): Q1 revenues contained a $33 million "accrual," with an estimated "impact" of $200 million to $250 million for the year. (Amgen didn't say whether that accrual was in the form of expenses or revenue.)
  • Abbott Labs (ABT): Q1 2010 sales were reduced by approximately $60 million as a result of higher Medicaid rebates, and the company took a one-time tax charge of $60 million.
If you're wondering how reform is already having an economic affect on these companies when, in your own life, nothing seems to have changed, you'll be interested to know that Biogen (BIIB) agrees with you:
  • Biogen: Presently, uncertainty exists as many of the specific determinations necessary to implement this new legislation have yet to be decided and communicated to industry participants. For example, we do not yet know when and how discounts will be provided to the additional hospitals eligible to participate under the 340(B) program. In addition, determinations as to how the Medicare Part D coverage gap will operate and how the annual fee on branded prescription drugs will be calculated and allocated remain to be clarified, though, as noted above, these programs will not be effective until 2011. We have made several estimates with regard to important assumptions relevant to determining the financial impact of this legislation on our business due to the lack of availability of both certain information and complete understanding of how the process of applying the legislation will be implemented.
Aside from a negligible tax difference, the company didn't actually say what those estimates were, meaning that management believes they were immaterial.

Image by Flickr user Fibonnacci Blue, CC.