Investment Suggestions From Mutual Fund Businesses

  • November 16, 2020

Aging demographics imply increased drug usage over at least the next decade. The most innovative pharmaceutical companies will likely benefit, even as traditional branded drug prices fade. Importantly, utilization growth rates are greater than unit cost rises, indicating product efficacy.

Shifting from an emerging to a developed country, China can’t escape its demographics. As a byproduct of the one-child policy, China’s enormous population increased at only 0. 6 percent per year from 1996 to 2015.

Investment Advice

Low growth implies an aging population, and aging has its societal costs. Many Americans are struggling to pay for health care, and the Chinese are facing an even bigger tab. By 2050, roughly a quarter of China’s citizens will be older than age 60. With less than 6 percent of gross domestic product spent on health care (vs. 9 percent to 12 percent in most developed countries), the Chinese will likely devote more of their resources to staying healthy.

If the drugs weren’t effective, doctors wouldn’t prescribe them. Assuming buyers will pay for efficacious drugs, then the prognosis for the more innovative pharmaceutical companies is good. Investor skepticism weighs heavily on the sector, making this one of the more promising areas in this mature bull market. Hospitals had become heavily dependent on drug sales to keep the lights on.

To supplement their measly salaries, doctors accepted prescription-related bribes from pharmaceutical manufacturers. After a successful pilot program, zero markup of drugs became reality for most hospitals across the country this year. To speed up the approval process for efficacious drugs, the China Food and Drug Administration quadrupled its staff in and is on track to increase staff by 50 percent this year.

Lower for longer was a phrase coined several years ago as interest rates stayed at historically low levels for longer than nearly anyone had predicted. Proposed drug pricing reforms, such as bidding, reimportation, Medicare negotiating prices and value-based pricing either already exist or have serious, likely insurmountable flaws, such as public safety. Even Medicare, the colossus of U. S. pharmaceutical buyers, probably can’t negotiate prices more favorable than under current law without being forced to restrict access, as drug demand may rise.