Rising Healthcare, Pharma Costs Will Continue to Affect Earnings

by: William Trent, CFA

Rising costs harpooned the HMOs, but could have been foreseen by looking at the detailed PPI data.

The latest Value Line Industry Survey on the drug industry had the following to say:

The major pharmaceutical companies that dominate the Drug Industry will report June-quarter results over the next few weeks. Year-over-year comparisons are likely to be generally unexciting, primarily reflecting pressures on the top line from significant patent expirations and the resulting assault from generic competition. The silver lining in the drug sector’s multiyear descent, however, are valuations that have reached extraordinarily low levels, from which the downside risk appears manageably low and the dividend yield temptingly high.

The New York Times says the pharmaceutical industry is beginning to reap a windfall from a surprisingly lucrative niche market: drugs for poor people.

PPI data shows that hospital costs are rising faster:

Hospital PPI

As are pharmaceutical costs:

pharma PPI

But a doctor's visit is not rising as quickly:

doctor PPI