Question

Are rising inflation rates a threat to healthcare companies?

Answer 1

Yes, rising inflation rate is a threat to healthcare companies.

Rising inflation rate resulted in the increase in the cost of the healthcare products which indirectly impacted on the profitability of the pharma companies. The main reasons which result in higher costs and inflation are:

1) more people;

(2) an aging population;

(3) changes in disease prevalence or incidence;

(4) increases in how often people use health care services; and

(5) increases in the price and intensity of services.

Impact of inflation is ultimately transferred to the general public as healthcare product prices have risen significantly, according to data in USA $ 3.5 trillion are spent on healthcare in 2017 which shows the problem arised due to inflation is faced by both healthcare companies and general public. Pharma stocks comprise 14% of S&P500 and were facing continuously negative growth. In 2019 US government spent $1trillion on healthcare so that the pharma companies could easily run their business and the effect of inflation on pharma companies and healthcare products could be reduced.United States health spending rising to 5.3% in 2018 is a reflection of higher prices of medical goods and services, and increased costs of Medicaid.

Many healthcare companies have lost 5% to 10% of their market cap due too increase in cost of products and decrease in profitability.

The above screenshot shows the growth of pharma stocks in comparision with S&P 500, it shows the clear picture of how pharma stocks are affected by inflation and cost of products.

But with the steps taken by US Govt pharma stocks have started reviving from the losses they have faced since years.