Healthcare - overall - Pharmaceutical reform imminent?
Recommendation: Over Weight
The Health Ministry may soon prohibit doctors from dispensing drugs to their patients and limit their roles to only prescribing, according to media reports yesterday. It was also reported that organisations representing doctors and pharmacists agreed in principle that dispensing be left to the pharmacists. We are neutral on this news as the separation of drug prescription and dispensing will not have a significant impact on hospital and pharmaceutical stocks under our coverage. We maintain our Overweight call on the sector, with Pharmaniaga and Hovid as our top sector picks. Strong revenue and earnings growth are the potential re-rating catalysts.
What Happened
The Star reported that five organisations representing doctors and pharmacists in Malaysia met with the Health Ministry to work on the introduction of the new system. The exact timeframe was not stated but one of the organisations hoped the system could be implemented by April.
What We Think
Debate on the separation of drug prescription and dispensing has been going on since as far back as 2008. Pharmacist groups argue that the new system will benefit consumers by lowering the cost of drugs and preventing drug overuse. However, the issue remains controversial as the income of doctors, especially the general practitioners, will be affected by this move. They may eventually raise their consultation fees to offset the loss of income from drug sales. The overall effect may be an increase in overall healthcare costs for consumers.
Either way, we believe the new system will not have a significant impact on the earnings of private hospitals and pharmaceutical players. In hospitals, the functions of prescribing and dispensing drugs are already separated. Pharmacies run by the hospitals have a location advantage over third-party pharmacies. Pharmaceutical players are also unlikely to be significantly affected as drugs must be consumed, regardless of the sales channel. On top of that, sales for pharmaceutical players under our coverage are either supported by government concession agreements (Pharmaniaga) or the export market (Hovid).
Pharmacy operators, such as Caring (CARING MK, not rated), will be the winners of the new system as their sales should increase dramatically. On the other hand, clinics, especially those operated by solo practitioners, may need to raise their consultation fees to avoid a huge drop in income. Currently, the average fee in GP clinics (including consultation and drugs) is around RM45 per patient, significantly below the maximum allowable rate of RM125 per patient for consultation alone. There is plenty of room for doctors to raise their consultation fees. In the long run, this is likely to take place given that demand for primary healthcare is price inelastic.
What You Should Do
Overall, we are neutral on the news. We maintain Overweight on the sector as the new system should not affect the earnings prospects of healthcare players under our coverage. We prefer Pharmaniaga and Hovid for exposure to the Malaysian healthcare sector. In the hospital space, we prefer IHH.
Source: CIMB Daybreak - 17 February 2015
Recommendation: Over Weight
The Health Ministry may soon prohibit doctors from dispensing drugs to their patients and limit their roles to only prescribing, according to media reports yesterday. It was also reported that organisations representing doctors and pharmacists agreed in principle that dispensing be left to the pharmacists. We are neutral on this news as the separation of drug prescription and dispensing will not have a significant impact on hospital and pharmaceutical stocks under our coverage. We maintain our Overweight call on the sector, with Pharmaniaga and Hovid as our top sector picks. Strong revenue and earnings growth are the potential re-rating catalysts.
What Happened
The Star reported that five organisations representing doctors and pharmacists in Malaysia met with the Health Ministry to work on the introduction of the new system. The exact timeframe was not stated but one of the organisations hoped the system could be implemented by April.
What We Think
Debate on the separation of drug prescription and dispensing has been going on since as far back as 2008. Pharmacist groups argue that the new system will benefit consumers by lowering the cost of drugs and preventing drug overuse. However, the issue remains controversial as the income of doctors, especially the general practitioners, will be affected by this move. They may eventually raise their consultation fees to offset the loss of income from drug sales. The overall effect may be an increase in overall healthcare costs for consumers.
Either way, we believe the new system will not have a significant impact on the earnings of private hospitals and pharmaceutical players. In hospitals, the functions of prescribing and dispensing drugs are already separated. Pharmacies run by the hospitals have a location advantage over third-party pharmacies. Pharmaceutical players are also unlikely to be significantly affected as drugs must be consumed, regardless of the sales channel. On top of that, sales for pharmaceutical players under our coverage are either supported by government concession agreements (Pharmaniaga) or the export market (Hovid).
Pharmacy operators, such as Caring (CARING MK, not rated), will be the winners of the new system as their sales should increase dramatically. On the other hand, clinics, especially those operated by solo practitioners, may need to raise their consultation fees to avoid a huge drop in income. Currently, the average fee in GP clinics (including consultation and drugs) is around RM45 per patient, significantly below the maximum allowable rate of RM125 per patient for consultation alone. There is plenty of room for doctors to raise their consultation fees. In the long run, this is likely to take place given that demand for primary healthcare is price inelastic.
What You Should Do
Overall, we are neutral on the news. We maintain Overweight on the sector as the new system should not affect the earnings prospects of healthcare players under our coverage. We prefer Pharmaniaga and Hovid for exposure to the Malaysian healthcare sector. In the hospital space, we prefer IHH.
Source: CIMB Daybreak - 17 February 2015
