Big Profits for Big Pharma
by Matthew Madia, 11/6/2006
Recently, defense contractor Lockheed Martin reported that it was making handsome profits at taxpayer's expense. In similar spirit, several pharmaceutical companies have reported huge profits as well, in part due to new business from the federal government. The now-online Medicare drug benefit, which does not let the federal government negotiate prices with drug companies, has provided much of the boost.
Pfizer, the world’s largest drug maker, said its sales soared 14 percent in the United States in the third quarter, while rising only 3 percent internationally. Over all, Pfizer said its profits more than doubled, to $3.4 billion from $1.6 billion, though part of the difference came from high one-time charges last year.
Pfizer did not disclose how much of the sales growth came from price increases and how much from new prescriptions, but earlier this year Pfizer raised the list prices of some of its biggest drugs by 5.5 percent or more, well above the inflation rate.
Sounds like these companies could afford it if the government came to the negotiating table. Indeed, Democrats have proposed a rule allowing the federal government to try to lower drug prices, as it does through the Veteran's Administration's drug plan. Too bad the White House will likely side with the drug companies.
Tony Butler, an analyst at Lehman Brothers, said both volume growth and price increases had driven the industry’s rising profits. But he said he did not expect major changes in the Part D plan even if the Democrats took over Congress, since President Bush would probably not sign any legislation that would allow Medicare to negotiate prices directly.
“It’s our belief that the White House will veto it,” he said.
