In Washington, there is a distinct undercurrent of gloating when it comes to the Panic of 2008.No one is happy, exactly, about the incredible turmoil in the financial markets, nor can anyone be said to be thrilled that taxpayers will be putting up something like $700 billion to rescue Wall Street.
But in a town filled with people who work for the federal government, there is an undeniable sense of vindication. See, we are needed after all. Free markets don't take care of themselves. Sometimes you just have to turn to Uncle Sam to see you through.
Or, as Washington Post columnist Steve Perlstein puts it, "It will no longer be an easy applause line for a politician to declare that government is the problem and that markets always know better than regulators and politicians."
We've already pointed out that it may be naive of industry to think that the financial storm will spare it any damage, since the biotech industry is, in a sense, nothing more than an amazingly complex form of derivative finanicial instrument: a way for investors to tap indirectly into the immense profits of Big Pharma blockbusters.
We've also written about Big Pharma's own bubble problem: the fact that the industry is built to support an unprecedented--and apparently unsustainable--spike in approval of large, primary care brands in the mid-1990s, generating a need for infrastructure--and expectations for growth--that now present a terrifying cliff at the end of this decade. If Merrill Lynch can vanish, why can't Pfizer?
But it is not just loss of confidence in creative financing or in the stability of mega-cap companies that is a threat: there is also the renewed confidence in central government interventions in the economy to think about.
If the government must intervene to save Wall Street itself, then why can't it intervene elsewhere in the economy--like, for instance, in setting the price of life saving medicines?
As tough as it has been to be a Big Pharma company the last three years, it would have been even tougher without the Medicare Part D program, a massive new insurance program to subsidize the purchase of those previously mentioned blockbusters--and one that relies on the principle that free market competition is the ultimate path to efficient, economically effective health care.
This is the program that famously prohibits the federal government from "interfering" in the negotiation of prices between the private drug companies and the private drug insurance plans--and at the same time commits the public to pay whatever the price ends up being.
Its fair to say that the events of the past week will strengthen the hand of those who don't like the Part D model. After all, if the free markets don't work for mutual funds, will anyone believe that they work for Medicare?
Count both Presidential candidates among those with strong misgivings about the Part D program, albeit from very different perspectives. Democrat Barack Obama thinks it relies too much on private contractors, and favors given the government more power to act--especially when it comes to the price paid for medicines. Republican John McCain objects to the program for the opposite reason, saying that taxpayer funding shouldn't be commited to a new healthcare entitlement. But he too wants the government to get a better deal on any medicines it ends up paying for.
Obama has already begun hammering McCain for his free market approach to health care in general. Expect that to continue until election day.
But no matter who is victorious in November, the events of September will ripple into the pharmaceutical sector. After all, if Washington can set the price for AIG or Fannie Mae, surely it can decide how much Avastin is worth...
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