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CORRECTED - European drug stocks unfazed by U.S. health reform

(Corrects paragraph 8 to remove extraneous reference to $3 billion. The error also occurred Updates 1 and 2)

* U.S. bill spells short-term EPS pain, long-term sales gain

* Pharmaceutical stocks trade in line with broader market

* Sanofi-Aventis knocked by setback for heart drug Multaq

By Ben Hirschler

LONDON, March 22 (Reuters) - European drug stocks were unfazed by legislation overhauling the U.S. healthcare system on Monday, with an expected hit to earnings from 2011 offset by the long-term gain of extending sales to millions more Americans.

Shares in leading drugmakers GlaxoSmithKline, AstraZeneca, Novartis and Roche traded broadly in line with the overall market by 0915 GMT.

Sanofi-Aventis was the one outlier, dropping 2 percent following a setback for its heart drug Multaq in France. Big Pharma will provide somewhat more in savings than the original $80 billion agreement under the latest version of healthcare reform but the bill passed by the House of Representatives creates 32 million more customers for the industry’s products.

Crucially, the government will not impose drug price caps.

“The amount they are paying, essentially in a tax, over a five to 10 year period is potentially more than offset by the increased volume that they have coming in,” said Ben Yeoh, an industry analyst at Atlantic Equities.

“It looks neutral, within forecast error,” he said. “There’s relief that something has got through that drugmakers can live with.”

Morgan Stanley analysts said the reform package would depress earnings per share at European pharmaceutical companies by up to 2 to 3 percent in 2011, due to an imposed annual industry excise tax of $2.5 billion from next year.

But the brokerage said this would be counteracted by a sharp increase in the number of insured patients and enhanced revenues from the Medicare programme for the elderly. Drugmakers were unlikely to revise long-term earnings outlooks on the back of the news, it added.

Savvas Neophytou, an analyst at Panmure Gordon, put the cost to the sector at between 1.5 to 2.2 percent of EPS per year for the first five years but said the end to uncertainty should help sentiment. Sunday’s House vote ended a year-long political battle with Republicans over the vexed issue of healthcare reform and achieved a goal that has eluded many presidents for a century -- most recently Bill Clinton in 1994.

“There’s a sense that if no health reform had passed this time around, then everything would have got a really big kicking in three or four years time because, inevitably, something had to give,” said Jack Scannell, an industry analyst at Sanford Bernstein. (Editing by Hans Peters)

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