Bedeviled by the healthcare details

Wall Street miscalculated effect of healthcare reform on Medicaid drug revenues

While the new U.S. healthcare reform legislation did not hide its new Medicaid discounts, the upfront costs apparently were largely ignored until the 1Q earnings began to roll in. Then seemingly everyone - large cap biopharma, analysts and investors alike - were taken by surprise by the quick impact of the new law on drug company P&Ls.

After the long passage process, the consensus apparently was that reform might have costs up front, but that the longer term benefits, like patent exclusivity for biologics and additional covered patients, would substantially mitigate them.

But as earnings season got underway, the upfront costs suddenly seemed underestimated as companies adjusted revenue and EPS numbers downward while the long-term benefits seemed overestimated and so far away as to factor little in current valuations.

"People tended not to overanalyze the impact in 2010 going into 1Q," observed Evan McCulloch of Franklin Templeton. "The general perception was that this will be negative in the short term and positive in long term. But maybe we underestimated the negative impact in the short term and overestimated the long-term positive impact."

The costs for the entire biopharmaceutical industry over the next decade were pegged at more then $100 billion and as much as $115 billion by

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