Stephen Foley: Big pharma needs to compromise

Outlook: It looks like the pharmaceutical industry has been tempted back on to a war footing, but it should tread cautiously. With plans for US healthcare reform becoming unstitched before our very eyes, the industry's main lobby group appears to have decided that $100m it spent on ads in favour of President Barack Obama's shake-up was money down the drain.

The man in charge of the "play nice" strategy, PhRMA's chief executive, Billy Tauzin, has quit, signalling much more aggressive lobbying against change in the future. Mr Tauzin signed a secret deal with the White House that promised the federal government $80m in savings on the cost of drugs in return for a block on a number of threats to pharmaceutical profitability, notably the threat of allowing imports from Canada, where medicines are cheaper.

Many in the industry judged it a tactical failure, since it became clear after it leaked that the White House might not be willing or able to keep to the pact. However, the conclusion shouldn't be that it was wrong for Mr Tauzin to try. If healthcare reform had passed in Congress, the deal would have slowed the inevitable erosion of drug company margins in the US, at least for a time. If it yet passes in revised form, his resignation means the White House no longer has a moral obligation not to stick it to Big Pharma.

Absent comprehensive healthcare reform the picture is even bleaker for the industry. Healthcare costs simply have to come down somehow, and a piecemeal approach entails picking up a lot of the off-the-shelf ideas, such as reimportation and central government negotiation of drug prices. It is better in those circumstances that PhRMA chooses a new boss in the bipartisan, pragmatic mould of Mr Tauzin.