• China’s Drugmakers May Have a Long Way to Fall

    (Bloomberg) — Even after a plunge last month that wiped $46 billion off Chinese health-care stocks, domestic drugmakers may be far from their floor as a Beijing-led policy shift gathers pace.

    China’s plan to drive down generic drug prices through a centralized bulk procurement program is set to redraw the industry by forcing its thousands of small generic drugmakers to streamline and consolidate after decades of enjoying outsized profit margins.

    “There won’t be a second act for traditional generic drug makers in China,” said Dai Ming, Shanghai-based fund manager at Hengsheng Asset Management Co. “In the past, there was hope that these companies would benefit from more government investment in health care due to the aging population, but now these health-care stocks will be further hurt by policy and undergo a greater correction.”

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    Health-care stocks faced more pressure at the start of 2019. The MSCI China Health Care Index fell 4.2 percent on Wednesday, to the lowest level since March 2017.

    In order to survive the shifting landscape and rely less on generics — drugs whose patents have expired — many companies are scrambling to pump money into research and development. Discovering a new medicine allows companies to earn high profits for as long as the new drug is covered by a patent, balancing out the loss of revenue from the fall in generic drug prices.

    Chinese companies had been in a sweet spot. Among the top 100 generic drug makers, Chinese firms had a 74 percent gross margin and an 18 percent profit margin in the third quarter, compared with a global average of 55 percent and 9.5 percent, respectively, according to data compiled by Bloomberg.

    Regulatory Quirk

    The privileged position was due to the quirks of China’s regulatory system. While multinational giants had to wait years for approval to import their new drugs, the domestic generic makers could do a thriving business in copying, testing and getting local permission for the medicines.

    At the same time, the industry benefited because of the lack of a centralized system for quality control. Multinationals like Pfizer Inc. and AstraZeneca Plc could win more hospital tenders for their off-patent drugs, as they could more easily offer quality assurances for their higher-cost medicines. That kept prices elevated throughout the pharma sector.

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    Now, China has embarked on a pilot program in which major cities bulk-buy certain drugs together, forcing companies to bid for contracts and driving prices by an average of 52 percent, one by as much as 90 percent. Last week, Chinese Vice Premier Sun Chunlan said China would be expanding the program to cover more cities and drugs, as medicine prices must fall for health care to be affordable for the people.

    R&D Race

    Chinese companies that are already heavily invested in R&D stand the best chance of surviving the new landscape. Among mainland shares, Jiangsu Hengrui Medicine Co. has invested the most in research by far — amounting to 16 percent of revenue in the latest quarter. Guangzhou-based Yipinhong Pharmaceutical Co. is in second place with 8.4 percent. Zhejiang Jingxin Pharmaceutical Co., Chengdu Kanghong Pharmaceutical Group Co. and Tianjin Lisheng Pharmaceutical Co. have invested about 8 percent of sales into research.

    Among Hong Kong-traded shares, CSPC Pharmaceutical Group Ltd. has 8.14 percent of sales invested in research and Sino Biopharmaceutical Ltd. has 6.23 percent.

    At present, Jiangsu Hengrui gets 20 percent of its revenue from novel drugs and 80 percent from generics, a ratio it wants to flip, Lianshan Zhang, president of global R&D, said in an interview last month.

    But a successful novel drug can take decades to develop, and the Chinese pharmaceuticals are up against the deep pockets and research talent of the multinationals, who are now enjoying rapid approval from Chinese regulators for their new medicine.

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    And since their investment funds come from revenue generated by generics, the plunge in prices may set off a vicious circle, said analysts.

    “With generic drug revenue being compressed, there’s a chance that it can’t cover the necessary investment to transition to novel drugs,” said Huarong Securities Co. analyst Zhang Keran. “The market does worry whether or not there will be sustainable cash flow going forward.”

    (Adds stock action in fourth paragraph.)

    To contact Bloomberg News staff for this story: Rachel Chang in Shanghai at [email protected];Mengchen Lu in Shanghai at [email protected]

    To contact the editors responsible for this story: K. Oanh Ha at [email protected], Jeff Sutherland, Bhuma Shrivastava

    ©2019 Bloomberg L.P.

    From:  bloomberg.com

  • 15 Best Places to Retire for Lower Healthcare Costs

    One of the biggest financial obstacles for retirees is paying for healthcare, according to a GOBankingRates survey. Healthcare in retirement can be expensive, with the average couple needing an estimated $280,000 after taxes to cover healthcare expenses over the course of their retirement, according to the Fidelity Health Care Cost Estimate.

    While there is no way to avoid medical expenses — at least not one that doesn’t involve ignoring your doctors — the variation in healthcare market costs from region to region do mean that where you’re spending your golden years can play a major role in what you can expect to spend. The study looked at those cities where the average annual healthcare costs per capita were under $5,000, then scored that data along with the average out-of-pocket costs and income for those age 65 and older to come up with a final ranking of cities where retirees could potentially pay less for medical care.

    15. Colorado Springs, Colo.

    Annual Healthcare Spending Per Capita: $4,984
    Annual Out-of-Pocket Spending Per Capita: $888
    Income of Age 65+ Households: $49,422

    Senior residents of Colorado Springs can pencil in almost exactly 10 percent of their annual income for the cost of their health insurance, with incomes just shy of $50,000 a year and healthcare spending just under $5,000 a year. The city very narrowly made this list as its average annual healthcare spending per capita was just $16 shy of the $5,000 cap for inclusion.

    14. Memphis, Tenn.

    Annual Healthcare Spending Per Capita: $4,644
    Annual Out-of-Pocket Spending Per Capita: $864
    Income of Age 65+ Households: $35,145

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    Seniors in Memphis are earning significantly less than seniors in many of the other cities included here, and with healthcare costs still on the higher end, they can expect to spend over 13 percent of their annual income on medical costs — among the higher rates of the cities included here. The good news for Memphis residents is that — with average costs on the low side — it’s one of the cities where $1 million lasts the longest in retirement.

    13. Austin, Texas

    Annual Healthcare Spending Per Capita: $4,946
    Annual Out-of-Pocket Spending Per Capita: $854
    Income of Age 65+ Households: $54,293

    The average healthcare spending in Austin is the second highest of the study, behind only Colorado Springs. However, with average incomes for retirement-age households at a healthy $54,000-plus, the percentage of total income devoted to healthcare is about 9.1 percent, among the lowest levels in the study.

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    12. Lexington, Ky.

    Annual Healthcare Spending Per Capita: $4,465
    Annual Out-of-Pocket Spending Per Capita: $902
    Income of Age 65+ Households: $49,214

    Lexington is notable for having relatively high out-of-pocket healthcare costs compared to other cities on this list. The $902 spent on average represents 20.2 percent of the total annual healthcare bill for the typical resident, the highest percentage of any city in this study. However, Lexington is still one of the cheapest places to retire across middle America despite those higher out-of-pocket costs.

    11. Reno, Nev.

    Annual Healthcare Spending Per Capita: $4,663
    Annual Out-of-Pocket Spending Per Capita: $822
    Income of Age 65+ Households: $45,707

    The Biggest Little City in the World isn’t just a place to consider for retirement if you’re interested in gambling and taking weekend trips to Lake Tahoe. It’s also home to an annual healthcare bill of $4,663, which constitutes a relatively affordable 10.2 percent of the average income for an age-65-and-older household.

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    10. Phoenix

    Annual Healthcare Spending Per Capita: $4,528
    Annual Out-of-Pocket Spending Per Capita: $827
    Income of Age 65+ Households: $44,300

    Phoenix is another area where the out-of-pocket costs for medical care are relatively high, with a little over 18 percent of the annual total for healthcare expenditures coming directly from patients. That’s the third-highest level of any city in this study.

    9. Seattle

    Annual Healthcare Spending Per Capita: $4,896
    Annual Out-of-Pocket Spending Per Capita: $749
    Income of Age 65+ Households: $54,325

    With the second-highest average income for senior households in the study, Seattle’s elderly population appears to be doing fine in terms of bringing money in. And although they have the third-highest annual healthcare expenditures of the cities on this list, it still represents just over 9 percent of their total income — the second-lowest proportion of these 15 locations. Still, with high overall costs, Seattle is one city where your retirement nest egg won’t go far.

    8. Las Vegas

    Annual Healthcare Spending Per Capita: $4,526
    Annual Out-of-Pocket Spending Per Capita: $764
    Income of Age 65+ Households: $41,969

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    Nevada residents likely can’t help but compare costs for Las Vegas vs. Reno, and such a comparison reveals that everything is lower across the board for Vegas. That does mean, though, that although Vegas residents are saving $137 a year on healthcare costs — including spending $58 less out of pocket — they’re also earning $3,738 less over the course of an average year.

    7. Portland, Ore.

    Annual Healthcare Spending Per Capita: $4,596
    Annual Out-of-Pocket Spending Per Capita: $755
    Income of Age 65+ Households: $47,775

    Portland’s relatively high income for senior households is paired with relatively modest healthcare costs and a relatively low portion of those being out of pocket. All of this is just part of why Portland makes the list of 15 cities you should consider for retirement.

    6. Baltimore

    Annual Healthcare Spending Per Capita: $4,484
    Annual Out-of-Pocket Spending Per Capita: $701
    Income of Age 65+ Households: $32,280

    Although annual healthcare costs under $4,500 are notable, it’s unfortunately not making a big enough dent for many elderly Baltimore residents. That’s because — with an average income of just $32,280 a year — healthcare is still taking up an oversized piece of their total budget. The average senior citizen can expect to pay out some 13.9 percent of their income in medical costs by year-end, the second-highest level of any city in this study. So, if the city life is getting you down, you might consider nearby Ocean City, Md. — one of the most affordable places to retire near the beach.

    5. Buffalo, N.Y.

    Annual Healthcare Spending Per Capita: $4,095
    Annual Out-of-Pocket Spending Per Capita: $741
    Income of Age 65+ Households: $31,909

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    Another city where healthcare costs and incomes are both low, Buffalo residents are spending about 12.8 percent of their income on healthcare on average — lower than some but still higher than many.

    4. Spokane, Wash.

    Annual Healthcare Spending Per Capita: $4,591
    Annual Out-of-Pocket Spending Per Capita: $697
    Income of Age 65+ Households: $43,831

    Spokane is one city where the out-of-pocket medical costs faced by the average resident are relatively affordable. Just 15.2 percent of total medical costs and 1.6 percent of the average income are going to out-of-pocket medical expenses in a typical year for the average senior citizen in Spokane, both of which are among the lowest levels in the study.

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    3. Rochester, N.Y.

    Annual Healthcare Spending Per Capita: $4,192
    Annual Out-of-Pocket Spending Per Capita: $707
    Income of Age 65+ Households: $27,998

    Annual healthcare costs in Rochester are nearly $1,000 lower than the national average of $5,141, making it one place where you can find relatively affordable healthcare costs. Except that the average retiree household is earning just under $28,000 a year, meaning the proportion of annual income going to healthcare costs — about 15 percent — is the highest in this study.

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    2. Washington, D.C.

    Annual Healthcare Spending Per Capita: $4,663
    Annual Out-of-Pocket Spending Per Capita: $662
    Income of Age 65+ Households: $59,086

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    Although the total healthcare spending isn’t especially low, the high income levels for the average 65-or-older household in our nation’s capital mean that this is the city where the smallest portion of income goes to healthcare costs — just 7.9 percent of that $59,086 a year.

    1. Tucson, Ariz.

    Annual Healthcare Spending Per Capita: $3,674
    Annual Out-of-Pocket Spending Per Capita: $648
    Income of Age 65+ Households: $39,448

    Although incomes in Tucson are relatively modest for age-65-and-older households, the average annual spending on healthcare per capita is a bit more modest. At $3,674, this is the only city in this study with costs under $4,000 a year — a bar Tucson cleared by over $300 a year.

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    More on Retirement

    Methodology: GOBankingRates determined the 15 best places to retire where healthcare costs less than $5,000 a year by observing 50 cities using a combination of three factors: 1) total spending on healthcare per capita, sourced from the Health Cost Institute; 2) out-of-pocket spending per capita, sourced from the Health Cost Institute; 3) median household income of age-65-and-older households, sourced from U.S. Census Bureau’s 2017 American Community Survey. To qualify among the top 15 cities, total spending on healthcare must be less than $5,000, based on the U.S. average of $5,141. After meeting this criteria, cities were scored based on senior household incomes, total spending and out-of-pocket spending, which were then combined into an overall score.

    From: GOBankingRates.com