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Moody's: Pricing, tariffs among risks to otherwise stable healthcare sector

Global pharmaceuticals and U.S. for-profit hospitals will likely remain stable in 2019, while U.S. medical devices were deemed positive in Moody's 2019 outlook for global healthcare due to innovative new products and increasing market demand.

According to Moody's, cancer research and the growing aging population will continue to be a major component of global pharmaceuticals' growth in 2019, and while the U.S. government is expected to double down on drug pricing, net prices will still rise. However, if significant legislation passes that forces lower drug pricing, the outlook may shift to negative.

Biosimilar competition also poses a risk to the sector; Moody's predicted declining sales for blockbuster drugs from big pharma companies in an October report. Patent expirations have also caused some reason for concern. Moody's highlighted Roche Holding AG's Rituxan and AbbVie Inc.'s Humira as two biotech drugs most exposed to potential negative impact due to patent expirations.

On the other hand, major product launches could boost the sector, as could "mega-mergers," Moody's said.

Currently, Moody's expects 2% to 3% growth in earnings for global pharmaceuticals.

U.S. for-profit hospitals, also predicted to remain stable, will likely post 3% to 4% growth in earnings for 2019, driven by higher rates from private insurers. Cost-cutting may be a focus for hospitals, though Moody's said more advanced technology could help streamline hospital procedures and improve efficiency.

However, despite productivity improvements, digital technology will also pose a risk in the form of cyberrisk and data privacy, which has been a rising threat to the healthcare sector.

Moody's said it expects adjusted patient admissions growth of 0% to 1%.

Medical devices are expected to grow 4.5% to 5.5% in earnings, thanks to new product expansions and increased demand. Recent acquisitions will also continue to benefit the U.S. sector, such as Becton Dickinson and Co.'s $24 billion acquisition of C. R. Bard Inc. in 2017.

Nevertheless, tariffs could negatively impact medical devices, especially in emerging markets such as China. Becton Dickinson is one company that has been hurt by tariffs, reporting a $45 million decrease in profit guidance for 2019 due to Chinese tariffs during the fiscal 2018 fourth-quarter earnings release in November.

The U.S. Medical Device Excise Tax, which would be about 2.3% of U.S. sales, is scheduled for reinstatement in January 2020, Moody's noted.