Posted By: John Steele

By BRAD FOSS, AP Business WriterWed Nov 8, 2:47 PM ET

WASHINGTON - By handing Democrats control of the House, voters likely set in motion legislative efforts to lower the price of pharmaceuticals and rein in military spending.
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But with the two parties stalemated in the Senate, where it usually takes 60 votes to pass major legislation, companies such as Merck & Co. and Lockheed Martin Corp. may find themselves beset more by unwelcome rhetoric in Congress than any hurtful changes in law.

To be sure, few major changes in corporate America are expected to result from Democrat-led initiatives over the next two years_ with the exception, perhaps, of a proposed increase in the minimum wage that may get substantial Republican support.

The long-term outlook for companies in the biotechnology and homeland security businesses may benefit, analysts said, from anticipated Democratic efforts to promote stem-cell research and inspect more cargo containers at ports. But the heightened scrutiny of other sectors, ranging from drugs to defense to energy, could cast a shadow that darkens their prospects on Wall Street.

"The drug industry is on the top of the list of industries that would be uncomfortable if Democrats are successful in the elections," said Ira Loss, an analyst at Washington Analysis.

That's because Rep. Nancy Pelosi (news, bio, voting record), D-Calif., who is slated to become speaker of the House, has promised legislation that would allow the government to negotiate directly with drug companies to purchase medicines for Medicare. The drug industry equates the concept to price controls.

Shares of Pfizer Inc. fell 55 cents to $26.55 on the New York Stock Exchange, where Eli Lilly shares declined by about 41 cents to $56.57. Shares of Merck fell $1.55 to $44.35 partly because of Merck's disclosure late Tuesday that liabilities from tax disputes could total $5.58 billion.

Pelosi has pledged that Democrats also would move to raise the minimum wage — a policy change that could affect fast-food restaurants such as McDonald's Corp., as well as other retailers.

Ballot measures that mandate increases in existing state minimum wage laws passed in Arizona, Missouri and Montana, among other states. Alaska voters, meanwhile, helped protect the pockets of Big Oil by shooting down a proposal to increase drillers' taxes by $1 billion a year.

Generally speaking, Democrats have said they will differ from Republicans by being tougher watchdogs of corporate wrongdoing and government spending and bigger defenders of consumers and labor unions.

Still, "there are not going to be wholesale changes in economic policy" because neither party has an overwhelming majority in either the House or Senate — and this may explain the stock market's recent strength, according to Wachovia Securities economist Mark Vitner.

Jay Timmons, senior vice president of policy at the National Association of Manufacturers, said he does not expect the partisanship that defined recent campaigns to last very long.

Sure, the Democrats will want to distinguish themselves from the Republicans early on — by shifting the emphasis in energy policy from, say, increasing the supply of oil to reducing the demand for it. But Timmons said pragmatism — and an eye toward the 2008 presidential election — will naturally pull both parties closer to the center.

"Nancy Pelosi is very shrewd," Timmons said. "She's going to want to build a majority that lasts more than two years and the way to do that is to reach out to nontraditional allies."

That is not to say Democrats do not have plans to shake up business as usual after a dozen years in the minority.

"The debate will shift dramatically from the first day," said Bill Samuel, legislative director of the AFL-CIO.

Rep. John Dingell (news, bio, voting record), D-Mich., who will take charge of the House Energy and Commerce Committee, said he would push for stiffer enforcement of environmental violations and tougher energy efficiency standards for home appliances. But he steered clear of a strong position on raising automobile fuel efficiency — an issue strongly opposed by Detroit automakers.

Rep. Barney Frank (news, bio, voting record), D-Mass., who will chair the Financial Services Committee, has said building more affordable housing is at the top of his agenda and Wall Street seems to be listening. Companies in the government-sponsored mortgage space advanced on Thursday. Shares of Fannie Mae climbed $1.26 to $61.14, while Freddie Mac gained 91 cents to $70.77.

With many political analysts viewing the Democrats' win of the House as evidence of waning support for the war in Iraq, some investors are bracing for the possibility that military spending may gradually slow.

Even if Republicans manage to maintain control of the Senate, Arizona Sen. John McCain (news, bio, voting record), a frequent critic of free-spending defense programs, is expected to take over as chairman of the Senate Armed Services Committee.

Shares of Lockheed Martin slid $1.02 to $86.47 on the NYSE, where defense contractor Raytheon Co. declined by 82 cents to $48.86.

Companies in the stem-cell sector showed gains after voters in Missouri narrowly approved a referendum guaranteeing federally approved stem-cell research and treatment will be available in the state. StemCells Inc. rose 20 cents to $3.26 on the Nasdaq Stock Market, where Geron Corp. rose 16 cents to $8.54.

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Associated Press Writers Theresa Agovino, Paul Elias, Marcy Gordon, Stephen Manning, Scott McFetridge, Bruce Meyerson, Eileen Powell, Jordan Robertson, Ellen Simon and Alex Veiga contributed to this report.

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