KUCHING: Generic pharmaceutical producers are best poised to benefit from the deliberated government policies overlooming the healthcare sector.
According to analysts at Affin Hwang Investment Bank Bhd (AffinHwang Capital), the new Pakatan Harapan government in its election manifesto aims to elevate health expenditure from four per cent of Gross Domestic Product (GDP) of up to six or seven per cent, with 2018’s healthcare expenditure amounting to RM26.6 billion.
The proposed increased allocation represents a 50 to 75 per cent surge in healthcare expenditure. However, the source of funding has yet to be disclosed.
“Taking cue from the Minister of Health (MoH) Dr Dzulkefly Ahmad’s interview, historical sources of funding between the public and private sector and the governmentprudent stance on fiscal policy would suggest for balanced funding,” it said in a special report yesterday.
“The private and public sector accounted for 52 and 48 per cent of healthcare expenditure respectively in 2016. But it may not translate to consumers across the income spectrum bearing the brunt. For example, the M40 and T20 paying more for outpatient treatment while B40 is subsidised.”
To note, the three policies are: an annual RM500 assistance to B40 households; revising consultation fees for standalone private clinics to RM35 to RM125 from RM10 to RM35; and to introduce competition within MoH’s procurement and distribution of pharmaceuticals.
The annual RM500 assistance to B40 households was positively viewed by AffinHwang Capital, especially for private healthcare providers and pharmaceutical producers with a large exposure to private clinics and hospitals.
“Seeing there are at least 2.6 million B40 households as of 2015 furnished with RM500 per household, it represents up to RM1.6 billionn inflow into the private healthcare system on a best case scenario,” it opined.
On the second policy of revising consultation fees, the research firm was largely neutral on its impact towards hospitals.
“Patients would be indifferent to both standalone and hospital clinics, but hospitals do not have the wide footprint to fully realise the potential,” it said.
“Meanwhile, the impact is neutral to negative on pharmaceuticals. Patients could either source relatively cheaper generic pharmaceuticals and/or from chain pharmacies as opposed to clinics.
“But it represents a habitual break from purchasing medication from the doctor. That said, it could translate to similar volumes but lower margin for the average pharmaceutical producer, but generic producers could possibly benefit.”
The last proposal to introduce competition within MoH’s procurement and distribution of pharmaceuticals would have a neutral impact to pharmaceuticals.
“The existing monopoly concession holder is most at risk. However, its function is merely a last mile deliverer, which may not be lucrative for potential entrants,” AffinHwang Capital said.
“Based on industry observers, operating margins for the RM1.2 billion concession contract ranges between one to three per cent. Meanwhile, industry players that we spoke to were consistently indifferent over the development, opining that competition is already well developed with high visibility over the tender process.”
While it is difficult to quantify the impact, AffinHwang Capital affirmed that these policies appear to favour the generic producing pharmaceutical players.
“However, we believe the companies under our coverage possess the competitive advantage to thrive in an evolving environment. Moreover, should the healthcare expenditure enlarge as per guided to six to seven per cent of GD, the sheer size would benefit most healthcare players regardless of dispossessed market share.
“We remain overweight on the healthcare sector as prospects appear already attractive based organic recovery, let alone the potential explosive healthcare expenditure inflow.”