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How Obamacare Will Play Out for Big Pharma

Stocks in this article: AAPL BMY GSK JNJ

NEW YORK (TheStreet) -- While Obamacare is expected to bring the U.S. drug industry billions of dollars in profits over the next decade, one question that remains unanswered is its impact on the ability of pharma giants to sustain their pace of curative and life-saving innovations.

With more than 8 million people on the Obamacare roster this year, the pharmaceutical industry is expected to rake in massive revenues through prescription drug purchases from a larger number of insured people.

But these top-line increases will be offset by a rise in the costs that pharma companies would need to pony up for assembling terabytes of patients' medical data, thanks to the Obamacare-driven advent of Patient Centered Outcomes Research Institutes (PCORIs). As a result, pharma companies may find it challenging to invest in R&D efforts aimed at curative discoveries and solutions to complex and unaddressed medical needs.

The new healthcare mandate could garner profits of up to $35 billion for the pharma sector, according to an analysis by GlobalData, a London-based research and consulting firm.

Even so, pharma companies, against the backdrop of the growing emphasis on evidence-based healthcare outcomes, are "concerned that PCORIs will ultimately affect their ability to come out with new drugs that may not carry sufficient evidence to indicate they are more effective (than existing comparables)," said Linda Green, a co-founder of the Columbia Alliance for Healthcare Management and Armand G. Erpf Professor at the Columbia Business School.

The origin of the patient medical records project, which aims at evaluating the effectiveness of various drugs, devices and treatment options, lies in an inconspicuous portion of the 2010 Affordable Care Act.

Furthermore, the industry has concerns with whether the government will invest sufficiently in Big Pharma innovations.

With the availability of equivalent low-cost products, "certain innovations won't be rewarded or paid for," says Toomas Truumees, managing partner of the Health Care and Life Sciences division at Decision Strategies International, a consulting firm.

"Now, there's a lot more uncertainty around what your peak sales for new drug innovations will be. This will make it hard to pull the trigger in terms of bringing those drugs to the market. The challenge for pharma executives lies in making multimillion dollar investment decisions, where outcomes are less certain," Truumees added.

Biologic drugs, or biosimilars, are among those medical products that bear the brunt of the Affordable Healthcare program in spite of an $80 billion deal that the Pharmaceutical Research and Manufacturers of America (PhRMA) negotiated with Senate policymakers, more than three years ago. This deal worked out a five-year exclusivity period for biosimilars through rebates and fees over a 10-year time frame, according to G.C. Green, a healthcare analyst at Business Insights.

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