Pharmaceutical Industry is ‘Safe Haven’ for Investors

Analysts at Peel Hunt have analysed the global healthcare sector, and stated that it is in a fairly healthy condition, in spite of the pressures the industry is currently under.

Contained within the report, the broker claims that the healthcare sector “has again proved its resilience in periods of economic uncertainty.”  They quote the Dow Jones World Healthcare Index, which is up 8% over the last 12 months, while the Dow Jones World Index is down 5%, adding that “the resilience of healthcare spending in times of uncertainty, favourable demographic drivers and outstanding cash generation make the sector an ideal safe haven.”

In Europe, the broker notes that the Eurozone crisis continues to dictate headlines, with major price cuts being enforced by Greece, Italy, Spain and Germany.  Germany is often used as a reference state for EU pricing “and has moved to a UK-like cost-effectiveness audit”, the report stated, adding that “the two countries are in discussion over plans to move to a value-based, ‘take-it-or-leave-it’ pricing appraisal.”

As for Japan, the report notes that the world’s second largest healthcare market “is usually mentioned in passing.”  However, Japan is now cutting prices at a slower rate and “is trying to streamline its regulatory process” and this is helping to make the Japanese market “more attractive to western and domestic healthcare companies.”

With regards to China, the analysts claim that the country is falling behind its goal to introduce universal insurance coverage by 2020.  During 2011, the government announced a further $125 billion of investment in healthcare, on top of the $850 billion from 2009, but “worries now centre on whether demand is out-pacing spending, putting further pressure on prices.”

The report analysts note that spending on healthcare in the US has “exploded in recent years” and “if forecasts are to be believed, spending could exceed 30% of GDP within the next decade.  This is clearly unsustainable, and still no coherent strategy for getting healthcare spending under control has emerged.”

The report also notes the legal issues over President Obama’s plans to introduce universal compulsory insurance coverage, commenting that if ‘ObamaCare’ is not endorsed, “service quality and prices will come under further pressure.”  Remarking on the Food and Drug Administration, it says that “the gatekeeper to the lucrative US market had a successful year for approving new drugs and introduced guidance for biosimilars.”

However, Peel Hunt concludes that “increased auditing of manufacturing facilities, prolonged review periods for devices/diagnostics and failure to provide guidance on respiratory generics will continue to cast the FDA in a poor light.”


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