The macro-economic drivers for the Healthcare sector as a whole are mixed. Demographics remain supportive. However patent expiration risk and increasing pressure from generic competition are a concern for Large-Cap pharmaceuticals in particular and the sector as a whole has been impacted by negative sentiment.
- Recent issues surrounding product safety have highlighted risks in terms of lost revenue, and potential litigation, which have impacted both Large-Cap pharmaceuticals and Bio-Technology.
- In the United States, the implementation of the Medicare programme is expected to put growing pressure on margins for branded drugs, which should support generic manufacturers. The political outlook for a Democratic win at the next elections should further strengthen this scenario.
- US Dollar weakness has impacted earnings of European healthcare companies, with pharmaceuticals typically deriving 50% of revenues from the United States.
- We remain optimistic on the longer-term outlook for the sector. We do believe sub-sector and stock selection remain key, as performance can diverge strongly between sub-sectors. Biotechnology, Medical Devices, and Generics are our preferred areas. We remain cautious on the pharmaceutical sub-sector, and favour companies with a well diversified product line-up, and strong pipe-line.
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