US HEALTH CARE ISSUES IN BUSH SPEECH TO NATION

President Bush's proposal in his State of the Union message to make the 20% tax credit on incremental R&D spending permanent is a positive for the drug industry, Hemant Shah of HKS & Co has told the Marketletter. But there was a large negative on health care in Mr Bush's speech, even though no specific recommendations were made.

If there is any major health care reform, even though it will not go so far as national health insurance, it will have a major negative impact on the industry, he said, with more institutional involvement leading to higher generic and therapeutic substitution. It is institutions, not so much individuals, who use generics, he said. Also, the enactment of some sort of health care reform this year is almost certain.

David Saks of Wedbush Morgan said it was more a matter of what Mr Bush did not say than what he did say. Drug stocks were hurt moving into January by continued fall-out from the Pennsylvania elections in which the health care issue played a large part, but the State of the Union message did not contain oppressive anti-drug sentiment. Any form of price control or regulation in the health care industry would mean a domino effect hitting both generic and brand-name firms, he said.