Britain's Psychiatric Stir-Up

The British government keeps stirring up the pharmaceutical world. Results from a study requested by Britain's National Health Service, which provides health coverage for British citizens, are already ruffling the feathers of some prominent drugmakers. The study has important immediate implications for three prominent firms, but investors should also be aware that the trail being blazed by the British could well find its way to this side of the Atlantic.

The Washington Post reported this morning that the British study shows that three newer, more expensive anti-psychotic medicines known as atypicals -- AstraZeneca's (NYSE:AZN) Seroquel, Eli Lilly's (NYSE:LLY) Zyprexa, and Johnson & Johnson's (NYSE:JNJ) Risperdal -- work no better than older, cheaper medicines known as typicals, such as thorazine. The three drugs are blockbusters for their respective companies, so obviously the study could have a major negative impact on these firms' bottom lines. For its part, Eli Lilly has argued that the study's comparison of multiple medications in different classes is problematic.

Besides the immediate problem the British report poses to the three companies, current news in the U.S. raises the possibility that the British tactic of cost-effectiveness studies may eventually become a strategy used by the U.S. government. In recent weeks, more news outlets have been looking at the issue of the Medicare prescription drug benefit's "doughnut hole." The doughnut hole refers to dollar range, currently between $2,250 and $5,100, in which beneficiaries under the Medicare drug plan have to pay 100% of their drug costs. With more seniors falling into the doughnut hole, the coverage gap is becoming an increasingly prominent election issue.

If the upcoming Congressional elections result in a Democratic takeover of either house of Congress, it seems likely that the Democrats will feel obliged to address the doughnut hole issue. But even if the Republicans maintain control, they too likely will be increasingly pressed to eliminate the coverage break. In any case, whichever party seeks to eliminate the coverage break will have to find a way to pay for the change. Given that the U.S. government is deeply in the red, the U.K.'s tactics may prove to be the only option.

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Freelance writer Brian Gorman does not own shares in any the companies mentioned.