US healthcare reforms have already impacted pharmaceutical companies but the effects of new legislation will provide challenges for quite a few years to come.
That is one of the key findings of a survey carried out by investment banking group RBC Capital Markets. Following its healthcare conference held in New York at the beginning of the month, some 83 institutional investors and industry executives were polled and 36% said that over the next three to five years, healthcare reform legislation to have the single greatest impact on the industry.
Other significant issues included pricing concerns, increasing patient volume and regulatory challenges. Some 49% of respondents also believe healthcare reform legislation is expected to most directly benefit generic drugmakers, while 84% believe M&A activity will increase in 2011.
However there is considerable enthusiasm for the industry in general and 63% of those polled expect the healthcare sector to outperform the S&P 500 index in 2011. Some 35% expect biotechnology stocks to perform best this year, followed by healthcare services (30%), medical technology (19%) and pharmaceuticals (16%). Mid-cap healthcare stocks are expected to deliver the strongest performance over the next three years, according to 50% of those surveyed.
The latter “offer an attractive risk-reward balance for investors,” said Marc Harris, co-head of global research at RBC. He added that “in this market, small-caps are viewed with caution due to their potential volatility, and large-caps are seen as not offering the same potential upside”.
Mr Harris went on to say that “not too big, not too small, mid-caps are the ‘Goldilocks’ of the healthcare sector and are attracting strong interest among investors.”
Kevin Davies, head of healthcare investment banking at RBC, added that healthcare reform “has created an environment of uncertainty and ambiguity because many components of the legislation have not come into effect or been codified yet. This is compounded by ongoing efforts by opponents to repeal some aspects of the legislation”.
