The global health-care sector is often considered immune to macroeconomic headwinds, a CIBC portfolio manager says, but the current inflationary environment is testing that assumption.
Michal Marszal, senior analyst and portfolio manager at CIBC Asset Management, said the impact of inflation varies widely depending on the health-care sub-sector.
The bio-pharmaceutical space, for example, makes extremely high-margin products so the impact is relatively low.
“These companies are relatively good at passing on pricing to the end consumer, which are typically government-subsidized health-care systems or somewhat privatized health-care systems,” Marszal said.
Inflation will have a greater impact in the medical devices and services sectors.
With respect to medical devices and technologies, higher input into manufacturing translates into lower growth margins, Marszal said, and these companies are limited in their ability to pass prices onto customers.
The services sector, meanwhile, is more tied to the labour market, and wage pressure ultimately impacts the sales and expenses of these companies, Marszal said.
Supply shortages have also contributed to inflation. And, in addition to driving up prices and input costs, he said, shortages “have a significant impact on the sales cycle.”
“This is having a disproportionate impact on the medical technology sector,” Marszal said. “So sort of a double whammy: higher input costs affecting growth margins, but also supply shortages that are delaying placement of certain tools and medical devices inside of labs, inside of hospitals and so on.”
Companies with high capital expenditures are dealing with shortages of semiconductors and other critical components. Moreover, “we don’t really see yet a very clear path toward resolution of these issues for that specific sub-sector within health-care,” Marszal said.
All of this is happening in the context of a more complicated U.S.-China trade and security relationship, Marszal said, with restrictions on the transfer of technology. This is affecting multinational companies trying to tap into the Chinese market.
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