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The healthcare opportunity |

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Ram Prasad Sahu / Mumbai April 5, 2010, 0:06 IST |

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The US healthcare reform bill with its focus on cutting costs is likely to be beneficial for generic and CRAMS players.

Healthcare stocks seem to be on a bit of a roll recently. The BSE Healthcare index delivered 12 per cent compared to Sensex’s 8 per cent gain since January this year. A large part of the gains by pharma stocks has come over the last one month on the back of the passage of the US healthcare reform bill, the global generic opportunity, steady domestic sales and the defensive nature of the sector given the pressure on interest rates. Investors have also taken a liking to small and mid cap pharma companies due to lower valuations.

With larger companies having a pipeline of abbreviated new drug applications (ANDA), some with exclusivity period and drugs worth $80 billion coming off-patent over the next five years, investors are betting on Indian companies garnering a chunk of this generic opportunity. In this context, the passage of the US healthcare reform bill, which aims at reducing healthcare costs, will help Indian companies which are among the lowest cost producers of generic drugs. Further, with global MNCsevincing interest over the last couple of years and M&A’s increasing, analysts expect consolidation and demand for good quality pharma companies.

The healthcare reform bill

The reform bill which has recently been passed into law in the US has two key features. It increases health coverage and aims at the reduction in healthcare costs. The bill increases the coverage to an additional 32 million uninsured Americans who make up about 10 per cent of the total US population. The bill prohibits insurance companies from excluding people with pre-existing medical conditions and dropping policy holders on account of coverage limits.

Secondly, the bill which is expected to cost US taxpayers $940 billion over the next decade is expected to reduce the US...