Boston, MA -- (SBWIRE) -- 01/08/2013 -- BMI View: The country's health expenditure will continue to increase with the increasingly ageing population and the need for the government to subsidise more drugs to treat chronic, non-communicable disease. Such a rise in expenditure will attract pharmaceutical firms despite the low growth potential in the developed market. However, given the poor fiscal outlook in the general economy, we believe such a generous healthcare system will be unsustainable over the long term and the country will continue look at cost-cutting measures, negatively affecting the earnings of pharmaceutical firms. .

Headline Expenditure Projections

- Pharmaceuticals: AUD12.85bn (US$13.27bn) in 2011 to AUD13.07bn (US$13.59bn) in 2012; +1.6% in local currency terms and +2.4% in US dollar terms due to exchange rate fluctuations. Forecast broadly in line with Q412.
- Healthcare: AUD122.27bn (US$126.22bn) in 2011 to AUD127.37bn (US$132.47bn) in 2012; +4.2% in local currency terms and +5.0% in US dollar terms due to exchange rate fluctuations. Forecast broadly in line with previous quarter.
- Medical Devices: AUD5.57bn (US$5.75bn) in 2011 to AUD5.82bn (US$6.05bn) in 2012; +4.4% in local currency terms and +5.2% in US dollar terms due to exchange rate fluctuations. Forecast broadly in line with Q412.

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Risk/Reward Rating: In BMI's Q113 Asia Pacific Pharmaceutical and Healthcare Risk/Reward Ratings (RRRs), while Australia's overall RRR score remains 66.2, its ranking has improved from third to second out of the 18 key markets in the region due to the decline in South Korea's RRR. Australia's affluent and increasingly ageing population, coupled with its proper legal framework, will continue to attract pharmaceutical firms to the country. However, profit growth will be limited given that it is a developed market.

Key Trends And Developments

- In September 2012, CSL secured a five-year vaccine supply contract with the US government. The indefinite delivery and quantity contract could be worth up to US$1.5bn (if there is a pandemic).
- In the same month, the government committed another AUD4bn (US$4.13bn) to address fundamental inequalities in dental care. It is looking to fund the programme through cutting the Teen Dental Plan, which cost about AUD60mn (US$62mn) a year and is budgeted to cost AUD98mn (US$101mn) in 2014/15. The rest of the funding is expected to come from the cancelled Chronic Disease Dental Scheme
- In August 2012, GlaxoSmithKline (GSK) sold 25 of its pharmaceutical brands to Aspen for US$262mn after it ended the Pharmannuity and Valtrex agreements with Ascent on July 31 2012. GSK had already sold a portfolio of over-the-counter (OTC) products in several countries in April 2012.

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