As a developed market, Australia represents opportunities for risk averse pharmaceutical investors, given its ageing and generally affluent population. Importantly, the government is implementing cost-cutting measures to cope with escalating healthcare costs, therefore generic drugmakers will stand to benefit from the patented to generic drug switch. However, given that generic costs is higher in Australia as compared to other developed countries, a downside risk to the view is the lack of generic substitution, given no apparent benefits to patients.
Headline Expenditure Projections
- Pharmaceuticals: AUD13.47bn (US$13.95bn) in 2012 to AUD13.95bn (US$13.94bn) in 2013; +3.6% in local currency terms and 0.0% in US dollar terms, due to exchange rate fluctuations. Forecast is broadly in line with our Q213 forecast.
- Healthcare: AUD135.8bn (US$140.6bn) in 2012 to AUD141.8bn (US$141.8bn) in 2013; +4.4% in local currency terms and +0.8% in US dollar terms, due to exchange rate fluctuations. Forecast reflects recipient of new market data, long term forecast was a slight downgrade compared to Q213 given the lower health expenditure growth.
Australia's Pharmaceutical Risk/Reward Rating (RRR) score for Q313 is 70 out of the maximum 100 under our newly improved RRR system. The country scored above average for all indicators and sub-indicators including overall market expenditure, sector value growth, pensionable population. Consequently with the high score, Australia is ranked third behind Japan and South Korea among the 18 key markets in Asia Pacific.
Key Trends And Developments
- In April 2013, draft report was issued by the Australian Pharmaceutical Patents Review on April 2 2013. The report suggested that the Australian government decrease pharmaceutical patent extension terms. The report also recommended using direct subsidies to fund research and development (R&D) in the pharmaceutical sector. The report has cited global trade agreements as a reason for increasing patent extensions in the country. The review was released in October 2012, and the draft report is open to public comment until April 30 2013.
- In March 2013, reflecting Melbourne University Economist Philip Clarke's view, a report by Grattan Institute stated that the Federal Government could have saved more than a billion annually if it changed the way prescription drugs are priced in Australia.
- In February 2013, Philip Clarke continued to state that the price of statins, which are used to treat high cholesterol, is expensive in Australia despite the introduction of price disclosure mechanisms. He observed that the cost of atorvastatin, the active ingredient in Pfizer's Lipitor, costs AUD1.37 (US $1.42) per tablet in Australia, which is significantly higher than the AUD0.12 (US$0.12 ) per tablet in UK.
BMI Economic View: The Australian economy maintained its pace of expansion in Q412, growing 0.6% quarter-on-quarter (q-o-q) in seasonally-adjusted terms. Much of the growth was supported by the improvement in export performance in the last quarter. However, we do not expect external demand to remain resilient in 2013, and believe that the soft domestic economy will also weigh on headline growth, which we expect to slow to 2.1%. That said, we see upside risks to 2013 GDP stemming from the potential for politicians to undertake more aggressive spending than we have pencilled in as the September elections draw closer.
BMI Political View: Prime Minster Julia Gillard recently announced that Australia's federal elections will be held on September14, and we expect election concerns to fuel paralysis on the policy front. Compared to the ruling Australian Labor Party (ALP)'s austerity plans, the Liberal-National coalition has put forth a number of proposed changes that could create a more investor-friendly business environment. At this stage, however, we believe the election is too close to call, as the independents remain unsure of the coalition's policies and a possible wave of anti-incumbency on the back of economic weakness could swing the results either way.