Things are not going well for the pharmaceutical sector due to the impact of spending cuts carried out by the Minister of Health during July of this year. The cutbacks amount to 2.4 billion euros this year alone, and last year saw another 2.5 billion trimmed. After the first it was announced that there would be no more cutbacks in the future, and this is why the pharma companies are petitioning the Minister of Health.
That has provoked strong earnings revisions for companies within the sector, who have seen their profit estimations slashed. This year's measure would bring some savings owed to the obligation to prescribe other drugs instead of commercial brands, to which would be added a rebate of 15% of the price of drugs with patents that have been on the market for ten years and don?t have a corresponding generic drug.
According to FactSet's consensus market view, this decision would mean a drop of 63 million euros in net profits for pharmaceutical companies compared to predictions made at the beginning of the year. Those numbers will not have a significant monetary impact, but they are meaningful in relation to pharma profits, considering that they have shrunk by one third this year alone and are expected to drop 41.3% next year.
Unbalanced pain
The measure, as was expected, has not affected all companies equally. It must be pointed out that the pharmaceutical sector is incredibly small in Spain in relation to other multinationals.
According to a report compiled by Banco Sabadell, the most affected company would be Almirall, considering that this company invests the most in R&D. Rovi will also hurt, as will Faes Farma, which will see its sales drop 90% in Spain. Grifols and Zeltia will not be impacted by the measures as significantly, however Zeltia is in a bad way at this time because its fundamentals are not looking good.
Penalized by the Markets
Further, the markets will continue to beat pharma companies, as none of them are performing well this year. Faes Farma and Zeltia have endured stock price losses upward of 30%, despite the fact that the latter surged 12.27% yesterday after Yondelis was approved for sale in eight countries, including Canada and Egypt. For Almirall and Rovi, the losses have been around 20%.
