NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, September 10, 2013

Health-care companies facing a host of profit-threatening conditions—such as pricing pressures, patent expirations and sluggish economic growth in mature markets—are beginning to build some immunity by boosting their exposure to the developing world.

According to Julia Giguere, a senior analyst who covers the health-care sector for MSCI ESG Research in Boston, developing countries are experiencing stronger economic and population growth than the developed world. They also boast rising middle classes and they increasingly need products that can address shifting disease burdens. Those factors should attract health-care companies, despite the challenges of dealing in these markets (the physical infrastructure of these countries is poor, and they often pursue protectionist economic policies).

“Companies need to start positioning themselves sooner rather than later to gain footholds in emerging markets for long-term growth,” says Giguere. “Health care is behind the curve compared to other sectors.”

For example, the top 20 health-care companies by market capitalization generate just 18% of their revenues in non-developed markets. Meanwhile, companies in the financial, consumer and telecommunication sectors generate an average of 39%, according to the report, Creating Value in Underserved Markets, co-authored by Giguere and published by MSCI ESG Research in March 2013. The pharmaceutical industry is the outlier, far outpacing other parts of the health-care sector in these markets, she notes.