Little impact seen from planned medicine price control on pharma players

TheEdge Tue, Dec 24, 2019 11:40am - 4 years View Original


KUALA LUMPUR: The government’s announcement back in May this year that the cabinet has approved the regulating of medicine prices in Malaysia has raised concerns that it would cause negative repercussions on medical drug producers.

Currently, the ministry of health is engaging various stakeholders to ascertain the appropriate model and price to apply. The objective of this move is to curtail the use of expensive patented drugs and make treatments more affordable. Given the breadth of the list of medicine under review, analysts don’t think this exercise can be concluded any time soon.

Still, MIDF Research is of the opinion that the proposal would not have a major impact on listed pharmaceutical players such as Pharmaniaga Bhd and Duopharma Biotech Bhd since both are producing affordable generic medicine.

“With regard to Pharmaniaga, we are comforted by the company’s renewed focus on its non-concession business by introducing more over the counter and consumer healthcare products in the private market, as well as strengthening business synergies between its Indonesian subsidiaries to expand its presence in the Indonesian market. The management is targeting to grow its non-concession business contribution to revenue until 60% [from 47% historically] in the medium term,” MIDF wrote in a report recently.

Still, the drug pricing control may curtail the growth of medical tourism in the longer term, said UOB Kay Hian.

“The general feedback from pharmaceutical corporates is that generic drugs are likely to prevail in the near term as branded drugs would likely be more susceptible to a price cap. Over the longer term, less saleable and/or innovative new branded drugs may not be introduced in Malaysia, given the lack of scale and that they are not economically attractive [profits derived from new drug are less than cost of drug registration].

“Medical tourism, which has a preference for branded drugs, may be impacted by the limited range of branded drugs,” UOB Kay Hian analyst Philip Wong wrote in a note recently.

Nevertheless, analysts are positive about the outlook for the pharmaceutical sub-sector given the resilient demand, potential earnings recovery from start-up expenses for new plants and equipment and the opportunity to grab a larger piece in government contracts.

In fact, Affin Hwang Capital analyst Chua Yi Jing highlighted that among the key focus areas to watch out for in 2020 are: i) potential earnings recovery for pharmaceutical manufacturers; ii) government increasing focus on addressing monopoly in drug distribution in the country; and iii) potential implementation of drug price controls.

Apex Healthcare Bhd is Affin Hwang’s top pick (“buy”, with a target price [TP] of RM2.67) for the sub-sector, given its solid growth prospects led by commissioning of its new plant and its established delivery network. The research house also likes YSP Southeast Asia Holding Bhd (“buy”, with a TP of RM3), for its undemanding valuation and reasonable dividend yields.

“We recommend positioning in the pharmaceutical space as a potential earnings recovery play and beneficiary of the government’s initiatives to liberalise the drug distribution in the country,” said Chua.

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