European drug stocks tumbled today after Barack Obama targeted high drug prices in his 2010 budget, underlining the importance of U.S. sales to companies based in Basel, London and Paris.

The Stoxx Europe Healthcare index had fallen 4.7 percent by 1130 GMT, exceeding a 4.1 percent slide in the American Exchange Pharmaceutical index overnight, with AstraZeneca and Novartis both losing more than 7 percent.

The United States is the world's biggest and most profitable drug market, accounting for nearly half of sales at companies like GlaxoSmithKline and AstraZeneca.

Traditionally high margins mean the country contributes an even larger chunk of European drugmakers' profits.

Those handsome returns may be threatened by plans to drive down prices paid by the U.S. Medicare system for the elderly, as well as attempts to make it easier for consumers to buy cheaper medicines from overseas and to increase generic competition.

The Obama plan is light on details but represents a clear sign of things to come, according to Deutsche Bank analyst Michael Leuchten.

"The proposal at this point seems mostly a signal as to the seriousness of intentions as well as the administration's willingness to ask wealthier Americans to foot the bill via taxes," Leuchten said.

However, the market may be over-reacting, Leuchten said, with the potential threat from the Medicare plans limited to perhaps 1 percent to 2 percent of operating profit if Medicare prices fall around 5 percent.

Damian McNeela at Panmure Gordon said weakness in the sector, which has outperformed recently, was probably exacerbated by profit-taking from institutions that are now being tapped for cash from other sectors.

"It seems to be that fund managers are looking for sources to raise money from potential rights issues and the obvious places to look are places where you've made profits," McNeela said.

For European drug companies, many of Obama's proposals have a familiar ring to them.

Drugmakers have already seen European governments forcing through price cuts for medicines in recent years and other Obama proposals also echo actions that Europe has taken:

- The re-importation of medicines -- allowing people to buy cheaper domestically produced drugs overseas - is common in Europe, where so-called parallel trade has long been a thorn in the side of drug company profits.

- Generic versions of biotech drugs, which Obama intends to promote, are already a reality in the European Union.

- U.S. plans to prevent drug companies from making deals that block generic competition mirror a similar clampdown on the industry by the European Commission.

- Funding for comparative effectiveness research will put the U.S. on track to analyse the true value of pricey medicines, as already happens in Europe.