Big Pharma fears a Kerry win will lead to curbs on drug prices

The board of AstraZeneca, the pharmaceutical giant, met in the US last week to examine the effect a John Kerry victory would have on its business.

The board of AstraZeneca, the pharmaceutical giant, met in the US last week to examine the effect a John Kerry victory would have on its business. Their assessment comes amid concern that a Democrat president would usher in dramatically lower drug prices that would have to be countered by savage job cuts to shore up profits in the industry.

The pharmaceutical industry is where presidential politics can most directly impinge on corporate profits. Because there are no central price controls, the US is the most lucrative drug market in the world, accounting for half the industry's sales. But Big Pharma's giant profits and venal marketing behaviour are reported alongside tales of pensioners having to pay some of the highest drug prices in the world. The Democrats, never traditionally a friend to the industry, see plenty of political capital in an attack on Big Pharma.

AstraZeneca's analysis started by looking at the Bush and Kerry policies and ended up putting a guesstimate "earnings per share" cost on a Kerry triumph.

The company came away satisfied that the number - top secret, of course - is more modest than many fear. Sir Tom McKillop, the chief executive, has always made a distinction between the politicians at the top and the policymakers who would be installed in a new administration. The company's contacts with both sides also suggested a degree of realpolitik would dull the edges of the policy pronouncements from on high. There is also the chance of a Kerry presidency being neutered by a Republican Congress.

Bush's reform of Medicare is extending the government health insurance scheme to cover drug costs for the elderly. The differences between Bush and Kerry would be in how this is administered. Under the Bush plan, administration is kept at a state level and private insurers can be involved, but Kerry will make central government a direct purchaser with enormous buying power. It might, in time, lead to de facto government price controls.

Stewart Adkins, at Lehman Brothers, said: "By 2006, the government will be picking up the tab for 45 per cent of the total drugs bill... Kerry has said he would aggregate government spending to get higher rebates, and the bigger the rebate, the bigger the problem for the industry."

The Bush administration also opposesdrug reimportation - the import of drugs from Canada, where they can be up to 50 per cent cheaper. The Democrats, however, could try to face down the US regulator, the Food & Drug Administration, which says it could not guarantee the safety of imported medicines.