European drug stocks slide after Obama win

By Ben Hirschler

LONDON (Reuters) - Worries about pressure on U.S. drug prices under a Democrat administration saw European drug stocks underperform the broader market on Wednesday after Barack Obama's decisive win in the presidential election.

Leading drug groups GlaxoSmithKline (GSK.L), Sanofi-Aventis (SASY.PA) and Novartis (NOVN.VX) lost between 4 and 5 percent in early trade as analysts warned Obama's plans to extend U.S. healthcare coverage could mean a squeeze on industry margins.

The DJ Stoxx healthcare sector .SXDP was off 4.0 percent by 0940 GMT, while the overall European market .STOXX slipped 2.4 percent.

But the fallout on the pharmaceutical sector may be less dramatic than in past U.S. elections, since health is likely to take a backseat to the economy in the short term and drug stocks retain strong defensive qualities as recession looms, analysts added.

The United States represents more than 40 percent of the global prescription drug market and an even bigger proporition of profits, given the premium prices that U.S. medicines traditionally command.

The biggest threat comes from future changes to the Medicare programme, which could see the government gain a whip-hand in negotiating lower prices for medicines for the elderly.

"The victory of Barack Obama opens the door for accelerating pricing pressure," said WestLB analyst Simon Mather.

He estimates a change to the Medicare buying process could negatively impact the U.S. pharmaceuticals from 2010 by about 5 percent, which would equate to around an impact of around 2 percent for the global industry.