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Despite problems, pharma is 'ideal safe haven' for investors

World News | March 13, 2012


Kevin Grogan

Despite problems, pharma is 'ideal safe haven' for investors

While their focus is on UK mid/small caps, analysts at Peel Hunt have cast their eyes on the global healthcare sector, and declared it to be in pretty healthy condition, despite the pressures the industry is under.

Contained within a 137-page report, the broker claims that the global healthcare sector "has again proved its resilience in periods of economic uncertainty". It quotes 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".

However, in the section dealing with the USA, the analysts note that spending on healthcare across the pond 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 notes the legal wrangles over President Obama’s plans to introduce universal compulsory insurance coverage, saying that if 'ObamaCare' is not endorsed, "service quality and prices will come under further pressure". Commenting 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 argues 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".

As for Europe, the broker notes that the Eurozone crisis continues to dominate headlines, with significant price cuts being enforced by Greece, Italy, Spain and Germany. The latter is often used as a reference state for EU pricing "and has moved to a UK-like cost-effectiveness audit", states the report, adding that "the two countries are indiscussion over plans to move to a value-based, 'take-it-or-leave-it' pricing appraisal".

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".

As for Japan, the report states that the world’s second largest healthcare market "is usually mentioned in passing". However, the country is now cutting prices at a slower rate and "is trying to streamline its regulatory process; this is making Japan more attractive to western and domestic healthcare companies."

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