The normally GOP-friendly drug industry now favors Obama.

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Aug. 27 2008 11:25 AM

Pills and Politics

The normally GOP-friendly drug industry now favors Obama.

Photograph of pills by Mary A. Pen. Click image to expand.
Pharmaceutical manufacturers are giving money to the Obama campaign

Whether Barack Obama can remake American politics remains to be seen, but he does seem to have converted one significant constituency: pharmaceutical manufacturers. For decades, the industry has given more to Republicans than to Democrats. This year, however, most drug company money—at least to the presidential candidates—is going to Obama.

According to the Center for Responsive Politics, drug company executives and employees have given about $450,000 to Obama this year, compared with just $132,575 for McCain. (Overall industry contributions to federal candidates are thus far even, with about $9 million going to each party; as recently as 2002, GOP candidates got three times as much as Democrats.) And the drug companies are out in full force at the convention: Abbott, Amgen, Astra Zeneca, Lilly, Merck, Novartis, and Pfizer are all among the convention's corporate sponsors.

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Why the switch? It may be as simple as trying to pick a winner. Even if Obama loses the general election, Congress is almost certain to remain under Democratic control, so it's pragmatic for the pharmaceutical industry to stay friendly with Democrats.

Another factor is historical friction between John McCain and the pharmaceutical industry. In 2000, McCain was a co-sponsor of legislation that would have made it easier for consumers to bring low-cost generic drugs into the country from places—like Canada—where they are cheaper. The industry fought fiercely to stop it, and the bad blood between McCain and the industry has not entirely disappeared.

Some of McCain's rivals in the Republican primaries criticized him for his attacks on the industry. As a recent Bloomberg story noted, in a January debate, Mitt Romney said to McCain: "Don't turn the pharmaceutical companies into the big bad guys." McCain's comeback was: "Well, they are." While McCain's Web site does not explicitly target the industry, it does say: "John McCain will look to bring greater competition to our drug markets through safe re-importation of drugs and faster introduction of generic drugs."

The problem for the drug industry: That's Obama's position, too. So regardless of who wins the election, the drug manufacturers are probably entering into a tough new era. For decades, the pharmaceutical industry has been the most profitable (as measured by margins) legal business in the world. (It currently ranks as third-most-profitable, according to the Fortune 500, behind networking equipment and mining/crude oil production.) But Big Pharma's cash machine is threatened by many factors. The 2004 recall of Merck's Vioxx shocked the industry—and the prices of drug stocks. The Bush administration's Food and Drug Administration, for years a casual regulator, came under strong pressure to hold manufacturers to stricter safety measures. Since that time, the FDA has approved fewer new drugs for sale and issued more safety alerts, which scares the industry and its investors.

More than just about any business, the drug industry's fortunes depend heavily on government regulation, state and federal. So, it's not surprising that the pharmaceutical lobby is as hard-nosed as it gets. The head of the main industry group, the Pharmaceutical Research and Manufacturers of America, is none other than Billy Tauzin, the longtime Louisiana congressman who was the head of the energy and commerce committee, which has the most oversight of the drug industry.

What are the major issues at stake for the drug companies? They claim they have to protect their margins to help pay for the high costs of developing new drugs. This means maintaining a hawkish stance on intellectual property (so they can extend profitable drugs patents) and as much protection as possible against drug imports from abroad. Recent scares about imports of tainted drugs and food gave the industry a temporary rhetorical advantage. But ever-rising American health care costs make high-priced prescriptions a tempting target.

Moreover, Obama, like the Democratic congressional leadership, would allow Medicare to negotiate the price it pays for prescription drugs, a move that his campaign says would save $30 billion—money that comes directly out of the drug companies' profits.

Not surprisingly, the industry is fervently opposed to this policy as well. "Any time the government gets involved in the business of setting prices, it takes away innovation from the free market," said Eli Lilly CEO John Lechleiter in an interview. "We look forward to a dialogue with the senator on this."

He was referring to Obama. But he may be having that conversation with whichever senator is elected.

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