The boost of buybacks
However, it was not so much its anti-cyclical nature that contributed to the performance (even in times of economic difficulty people continue to spend on health), but rather the extraordinary transactions that kept operators interested in this market segment. . "Among these we must certainly include the share buyback plans which in 2011 were the preferred method by companies in the sector to use their money", explains a study signed by Alex Mozorov, analyst at Morningstar. “Many companies have taken advantage of prices they consider discounted to take a few shares off the market and give a boost to the ones that are left. In this way they have also decreased the number of shareholders to pay dividends to, providing additional oxygen to the balance sheets".
Based on the analyst's calculations, if in 2009 the 30% of cash flows was used to carry out buyback operations, in 2011 the figure was 50%. In some sectors, such as that of medical devices (where valuations were particularly low also due to lackluster balance sheets), the 80% was even reached. "The buyback strategy, however, did not end with the end of 2011," continues Mozorov. “Other similar plans have been announced for 2012. The most full-bodied are those of Covidien, Stryker and Becton Dickinson. All companies that, thanks to this way of proceeding, could see a growth in profits of the 5%”.
There are cuts in the futureBut, beyond this type of operations, the future of the pharmaceutical sector remains uncertain. Above all, they will weigh on the accounts public spending cuts which will be decided by the US government after the supercommittee responsible for identifying a feasible strategy to reduce the state deficit has not achieved its goal. A large part will also affect health subsidies. And, in a situation of high unemployment, this will eventually affect the accounts of pharmaceutical companies because fewer people will have access to many medicinal specialties. “The situation should only marginally affect large companies that have a vast range of treatments that broaden the market base,” explains the analyst. "Some more problems could be faced by biotech companies that rely on public funds for particular research programs".
