Aegon Asset Management believes that the prospects for the Japanese pharmaceuticals sector are set t...
Aegon Asset Management believes that the prospects for the Japanese pharmaceuticals sector are set to worsen after posting returns of 38.34% in sterling terms for the 12 months ending 2 January 2001.
Matt Harris, Japan fund manager at the group, is concerned about a lack of new drugs coming to market over the next few years and also impending government healthcare reforms.
Harris says: "There are fewer new drugs set to come to the market over the next few years compared with the last couple of years which could lead to a sales slowdown.
"The Japanese government is also looking at a health reform programme which will come out in 2002. Although we are not sure what they are going to do, one possibility is a reduction in the price of pharmaceutical products which have been in the market for a long time. Another is introducing a fixed sum payment system - patients would make one payment and thereafter get all of the drugs that they need which would also hit the drug companies."
However, Schroders is overweight Japanese pharmaceuticals in the belief that merger and acquisition activity could benefit the sector.
Denis Clough, Japan fund manager at Schroders, said that many of the medium-sized pharmaceuticals firms in Japan could be involved in merger and acquisitions activity as Japanese companies in this sector tend to be smaller than their counterparts in the US and Europe.
Clough adds: "In this sort of economic environment pharmaceuticals also have relatively good earnings visibility. They are not that sensitive to slowdowns in the economy or in the US. These companies tend to have steady earnings growth and there is the added potential in the medium term of merger and acquisitions activity."
Clough holds Yamanouchi Pharmaceutical which is on a P/E of 72.75 times and saw its share price rise by 38.38% in yen terms in the period between 30 December 1999 and 29 December 2000. Clough said that Yamanouchi has three drugs in its development pipeline, which should prove to be good sellers in the rest of the world as well as in Japan. The firm has heart failure, anti-depressant and incontinence drugs, which are set to be on the market in 2003 and which Clough believes should bolster earnings growth.
Clough is looking to shift his focus to Yamanouchi and away from Takeda Chemical, which he believes has less potential as much of the good news for the stock is in the price. Takeda rolled out anti-cholesterol and anti-hypertension drugs last year which have already contributed to earnings growth. Takeda is on a P/E of 51.33 times and saw its share price rise by 33.86% in yen terms, between 30 December 1999 and 29 December 2000.
Harris holds Takeda and is also keen on Fujisawa Pharmaceutical, which produces a drug called Prograf that treats conditions such as arthritis and is selling well in the US and Europe.
Clough also holds Santen which focuses on eye treatments, a part of the market which he pointed out is growing faster than the overall pharmaceuticals market.
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