PETALING JAYA - The current debate about who should dispense drugs – pharmacists or doctors – has ignited interest in certain drugs counters, said analysts and observers.

The high valuations enjoyed by global pharmaceutical companies also contributed to the interest.

According to Thomson Reuters, almost US$70bil of mergers and acquisitions have been done in pharma and biotech this year, more than double the level of activity seen by the same point in 2014, the strongest start to a year in more than a decade.

Counters involved in the making and distribution of drugs – Pharmaniaga Bhd, CCM Duopharma Biotech Bhd (CCMD) and Hovid Bhd – have risen on this news.

Locally, the health ministry is mulling over a dispensing separation proposal that may see doctors prescribing and pharmacists dispensing medication.

Patients may no longer be purchasing their medicines from clinics should the proposal become law.

Despite concerns that the new dispensing method may lead to an overall increase in medical costs for the consumer, these stocks sustained gains, observers and analysts said. Interest seemed to be strong, they said.

Some of these companies have been out of the investing limelight for quite sometime.

“The interest could be sustained in the sector. The sector could also be playing catch-up to the overall healthcare sector which is deemed pricey,” said a dealer.

“Some of these stocks are thinly traded but the outlook for the sector is bright and they look like a good bargain too in the present market environment,” he said.

Hovid and CCM Duopharma, both with an export market, have also risen on the weakening ringgit.

CIMB Research’s Saw Xiao Jun is “neutral” on the news but maintained an “overweight” position as the new system should not affect the earnings prospects of healthcare players under its coverage.

“Pharmacist groups argue that the new system will benefit consumers by lowering the cost of drugs and preventing drug overuse.

“However, the issue remains controversial as the income of doctors, especially the general practitioners, will be affected by this move,” Saw said.

CCMD had been leading gains for drugmakers in the year-to-date period. It registered a hefty 31.6% gain in just three months while Hovid has a 27.14% gain, and Pharmaniaga a 24.67% rise.

Among these stocks, CCMD is trading at the lowest, trailing price to earnings ratio (PER) of 12.84 times, Pharmaniaga at 16.22 times and Hovid at 16.60 times earnings.

There is no forecast PER for CCMD.

Pharmaniaga and Hovid are trading at a forecast PER of 15.19 and 14.67 times repectively, according to Bloomberg data. They are also hovering at near their historic highs.

Pharmaniaga in its recent fourth quarter for the financial year 2014 saw its net profit rose by 76% year-on-year (y-o-y) to RM37mil on the back of revenues rising by 10% y-o-y to RM627mil due to lower amortisation charges and lower taxation.

Meanwhile, Hovid’s first half for the financial year 2015’s results came in within RHB Research consensus estimates with a y-o-y rise of earnings before interest, taxes, amortisation and depreciation of 20.5% to RM17.4mil and first half toplines rising 14.4% to RM97.1mil.

RHB maintained its neutral call and target price of 45 sen for the stock, pegged to a 17 times fully diluted forecasted calendar year 2016 earnings per share.

Source: The Star