NEW YORK (CNN/Money) - Drug companies might be happy with a GOP victory in Congress. But even though they are better off with Republicans at the helm rather than Democrats, it will still cost them some money.

Republican lawmakers are pushing for a prescription drug plan for seniors that could put even more heat on pricing. President Bush has proposed a change that would allow generic drug makers to put cheaper versions of brand-name drugs on the market more quickly.

These proposals come at a time when there has been no shortage of bad news in the drug sector. A record number of blockbuster drugs are coming off patent, and new drug approvals have slowed to an agonizing trickle while a top position at the Food and Drug Administration has remained vacant.

The Philadelphia Stock Exchange Drug Index, which includes 15 industry heavyweights such as Merck (MRK: Research, Estimates) and Pfizer (PFE: Research, Estimates), is down nearly 18 percent this year.

Drug stocks are cheap these days Historically, the stocks trade at a premium to the broader market Heading  Estimated 2002 p/e  Estimated 2003 p/e  Trailing 10-year p/e  Philadelphia Drug Index  21.1  18.9  27.1  S&P 500   19  17.1  21.2   Source:  Thompson Financial

Still, there's no question a republican victory is better for the industry, and that the stocks already reflect much of the bad news. "The market always thinks ahead, and it has already anticipated these events," said Cindy Sweeting, executive vice president of Franklin Templeton Investments. "There are no surprises here."

The stocks are trading at their cheapest levels in years. The average price-to-earnings ratio for the Philadelphia exchange's drug index is 21.2, compared with 19 for the S&P 500. Historically, the market pays more for drug stocks -- as much as a 50 percent premium over the broader market.

The only time drug stocks were cheaper was back when things became truly scary for the industry -- in 1992, when Hillary Clinton was fighting for a universal health care program. Then, drug stocks traded at a 10 percent to 15 percent discount to the S&P, Sweeting said.

The GOP-controlled House in June passed a White House-backed bill to spend about $320 billion over 10 years to offer seniors a prescription drug benefit. The Democrat-controlled Senate debated but failed to pass its own plan. Democrats had wanted to spend considerably more to give the benefit to seniors - some plans would have cost as much as $800 billion over 10 years. With a GOP majority, albeit a narrow one, it's likely the House plan - or something close to it - will resurface in the Senate soon.

When there is a plan in place, the big threat to drugmakers would be that the government will inevitably try to get lower prices on drugs. There's already a precedent: The government has mandated discounts on drug prices through its Medicaid program and at the VA Hospitals, said Robert Helms, a resident scholar at the American Enterprise Institute, a non-profit, non-partisan think tank in Washington.

But the flip side is that millions more people will start using medications who previously had no coverage. There are roughly 30 million people in Medicare without any prescription drug benefits at present. Who knows how many more drugs they'll be willing to take if they get some reimbursement for the cost?

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"We think the potential increase in volume from more people being covered could be a net positive for the industry," said Templeton's Sweeting.

Big-name drugs have a huge impact on a company's bottom line. Pfizer's cholesterol-fighting drug, Lipitor, for example, due to expire in 2011, produces a whopping $8 billion in annual sales, or about 25 percent of the company's total annual revenue, said Todd Lebow, a stock analyst at Morningstar.

President Bush recently proposed legislation that will make it harder for drug companies to use legal loopholes to extend their patents. Democrats had wanted even tougher reform, but the Republican-controlled Congress will likely back Bush's plan.

Drugs with $30 billion to $40 billion in annual sales will come off patent within the next five years, opening the door for generic drug makers to introduce cheaper versions. In 2001, Eli Lilly (LLY: Research, Estimates) lost its patent on its anti-depression drug Prozac, which produced $3 billion in sales. More recently, Schering-Plough (SGP: Research, Estimates) said its earnings through 2004 would fall far short of analysts' forecasts, in part because it will lose its patent on Claritin at the end of the year. The company earned about $2 billion a year in sales from the allergy-fighting drug.

But the next big spate of patent expirations isn't set to start until 2005-2006, so the drug sector will get a bit of reprieve that will help earnings next year, said Greg Aurand, co-manager of Orbitex Health and Biotechnology and Orbitex Medical Sciences. For example, Merck's Zocor and Bristol-Myers Squibb's (BMY: Research, Estimates) Pravachol, both cholesterol fighters, won't come off patent until 2005.

Plus, research and development has remained healthy. Pfizer and Pharmacia, for example, set to merge by the end of the year, will spend a combined $7 billion a year on research and development, which will lead to new drugs down the road, Aurand said.

"The outlook for the sector is pretty good if you choose appropriately," Aurand said.