Monday, April 19, 2010

Lilly's first quarter earnings drop

Back at the time of the Cipro/anthrax story, drug companies were worried about government involvement in drug pricing.
Later, of course, a certain Louisiana Congressman helped out big time. Now, there is a cutback.

From a story at WSJ by Nathan Becker about Lilly:

The charges stem from taxing subsidies given to companies for covering retirees' prescription drugs—similar to many other firms' recent announcements—and higher government rebates cutting revenue up to $400 million.

[from DJN: But the company said anticipated impacts from recently passed U.S. health-care reform would cut this year's profit some 35 cents a share from taxing subsidies given to companies for covering retirees'; prescription drugs--similar to many other firms' recent announcements--and higher government rebates cutting revenue up to $400 million.]

Not to worry: Sales of Zyprexa, Lilly's antipsychotic drug, rose 8.2%, while depression treatment Cymbalta jumped 13%.

IMS may have missed the issue from the new health plan:

Adding to the pressure of patent expirations, European governments will tighten price cost controls to manage increasing health care expenses of aging baby boomers. Unlike in the U.S., many European governments set national price limits for drugs dispensed within their countries.

Taxing subsidies vs. price limits?

from powerstrokenation on the situation at Caterpillar:

Since the Medicare drug program was enacted in 2003, Caterpillar and more than 3,500 companies that already provided drug benefits for retirees have received tax-free subsidies from the federal government as an incentive to maintain their drug programs.

The subsidies average $665 per person covered under a company-sponsored prescription program, according to benefits consultant Towers Watson, which recently completed a study on the health-care legislation's effects.

Watson Towers estimates federal taxes on the drug subsidies would amount to $233 per person receiving drug benefits under such programs.

About 40,000 Caterpillar retirees receive company-sponsored drug benefits, which are more generous than Medicare's drug plan, in which recipients are required to pay some out-of-pocket expenses.

Proponents of subjecting the drug benefit subsidies to federal income taxes argue that Caterpillar and other companies are already able to deduct health care benefit costs, including the drug program, from their taxes as a business expense.


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