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THE SPECIAL ELECTION

Drug Industry Wins Despite Defeat, Some Say

With discount initiatives rejected, the companies maintain the status quo, political experts say.

November 10, 2005|Lisa Girion | Times Staff Writer

California voters may have rejected a drug-discount measure backed by pharmaceutical makers, but a lavish campaign the industry bankrolled was worth every penny, political and financial experts said Wednesday.

The industry spent $80 million to back Proposition 78, which would have allowed voluntary discounts for low-income people, and defeat Proposition 79, a rival measure that would have all but forced drug makers to participate. Both were defeated, with 58% voting against Proposition 78 and 61% voting against Proposition 79.

The industry said it was fully committed to Proposition 78 and had not simply sought to defeat the rival measure. "We had many ads that dealt with 78 and supported the messages on 78," said industry spokeswoman Denise Davis.

But drug executives are "dancing in the boardrooms" despite the defeat of their own measure, said Bob Stern, executive director of the Santa Monica-based Center for Governmental Studies. "They don't care that 78 went down.... They really wanted 79 to lose."

With most states eyeing measures to make drugs more affordable, political and financial analysts viewed the election as a key test of the industry's ability to fend off mandatory discounts.

Darry Sragow, a political consultant and longtime Democratic campaign strategist, said the pharmaceutical companies "made a great investment" by putting Proposition 78 on the ballot.

Even if both measures had passed, the industry could have won, Sragow said, because the measure that attracted the greater number of votes would have trumped the other.

But "their biggest victory was if neither won, because that maintains the status quo," he said.

Proposition 78 created confusion that helped defeat Proposition 79, said Jack Pitney, a government professor at Claremont McKenna College.

"People didn't like the pharmaceutical industry, but they probably didn't know which initiative was which, so they voted against them both," Pitney said. "It was a clever strategy in that the industry used its own unpopularity to its advantage."

Shares of the biggest corporate donors to the industry's campaign, each of which gave nearly $10 million, rose in Wednesday's stock trading. GlaxoSmithKline closed up 10 cents to $53.19, Johnson & Johnson rose a quarter to $61.02, Merck & Co. gained 22 cents to $29.59 and Pfizer Inc. was up 25 cents to $22.16.

"The outcome is good for the industry," said Zach Wagner, a healthcare analyst at Edward Jones. "But it's more of a short-term positive impact because, longer term, the drug companies all are facing increasing pressure from a lot of groups on pricing."

Both consumer groups and the pharmaceutical industry said they would try to reignite interest in legislative efforts aimed at making medications more affordable to low-income and uninsured residents. But the two sides seem no closer on key issues than they were almost a year ago, when legislative stalemate resulted in the drive toward dueling initiatives.

W.J. "Billy" Tauzin, the head of the Pharmaceutical Research and Manufacturing Assn., said drug companies continued to see a voluntary program like the one proposed in Proposition 78 as the most workable solution.

Tauzin said the defeat of Proposition 79 meant that voters opposed empowering the state to steer its Medi-Cal business away from companies that did not offer discounts.

But consumer groups said that in rejecting Proposition 78, voters were saying they did not trust the industry to offer meaningful discounts without the threat of consequence.

Merck said it was disappointed that Proposition 78 lost and noted that it already had programs to help Californians without prescription drug coverage.

Other major drug companies did not respond to Tuesday's election result.

Consumer advocates said Proposition 78 was an effort by the industry to formalize discount programs that companies such as Merck have started. They criticized those programs as difficult for consumers to navigate and unreliable.

The companies "retain sole control over what the discount is, how long it will last, who qualifies," said Assemblyman Dario Frommer (D-Glendale), who carried a drug discount bill that passed the Assembly last session.

"What kind of program is that? You don't know from month to month what the discount is or whether you will qualify."

Frommer, like several consumer groups, said he wanted a program with verifiable discounts and state oversight. The coalition of groups that put Proposition 79 on the ballot has planned a series of meetings over the next few weeks to talk about what such a program would look like.

"We're flexible as long as the drug companies don't simply control and set their own terms," said Anthony Wright, executive director of California Health Access, a coalition of advocacy groups.

It is unclear how Gov. Arnold Schwarzenegger's postelection pledge to cooperate with Democratic lawmakers will affect the anticipated negotiations over a drug-discount bill. Schwarzenegger endorsed Proposition 78 but did not campaign for it.

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