US healthcare, what's for UK company?

Some UK companies are set to benefit from US healthcare reforms.

Anyone following the news last week won't have failed to notice that Barrack Obama finally managed to get his healthcare bill passed by a narrow majority.

The bill, which will extend health insurance coverage to 32 million more Americans by 2019 marks the biggest change in the US healthcare system for half a century.

Republicans hate 'Obamacare', seeing the spectre of escalating public spending, while many liberals feel the bill has been so watered down by industry lobbyists that it's hardly been worth the bother.

Let's forget the political debate, and ask: Can Fools make money from Obama's healthcare reforms -- even Fools investing in the UK?

Big pharma
The drug industry's contribution to reform will be in excess of $80 billion over the next decade, more than originally proposed. Drug makers will have to offer substantial discounts to those on a low income and the elderly, under the government-run Medicaid and Medicare schemes respectively.

That's the bad news for big pharma, but there's plenty of good. For a start, the adverse impact of discounting on margins is expected to be offset by higher sales volumes as the 32 million new customers start to access prescription medicines.

Furthermore, some industry-opposed initiatives in earlier drafts of the legislation were dropped from the final bill. The new law does not allow the government to dictate price limits or intervene on drug pricing negotiations. It does not allow US consumers to buy lower-priced, re-imported prescription drugs. It does not outlaw lucrative 'pay-for-delay' deals, in which a brand-owner pays a generic company to delay bringing a rival product to market.

Last, but not least, drug makers have been granted a 12-year exclusivity period on 'biologics' -- drugs synthesized from living organisms. Good for brand-driven big pharma; not so good for generics companies who will now have to wait longer before they can attempt to launch so-called 'biosimilars'.

Which UK pharma?
I wrote recently that AstraZeneca (LSE: AZN) is on an attractive valuation relative to sector peers, such as GlaxoSmithKline (LSE: GSK), and the likes of Novartis in Europe and Merck in the US.

AstraZeneca should also get a bigger boost than GlaxoSmithKline from Obama's healthcare reforms, as 45% of its sales come from the US compared to Glaxo's 36%.

In addition, AstraZeneca is the most heavily involved UK pharma company in biologics, through its MedImmune subsidiary, acquired for $15bn in 2007. Around 20% of Astra's current pipeline consists of biologics and the company expects that to increase to 25-30% over the next five years.

Further down the FTSE 100, Shire (LSE: SHP) is also perhaps interesting. It generates 71% of its sales from North America, with its two largest customers, Cardinal Health and McKesson, being in the US.

Astra, Glaxo and Shire have not commented publicly on the new legislation. I suspect they are more than satisfied, but wisely keeping their thoughts to themselves while the political temperature remains so high.

Medical devices
Big pharma isn't the only sector that will be helping to pay for reform. A tax on medical devices -- everything from surgical instruments to bedpans, according to some reports -- will start in 2013 and raise $20bn over 10 years.

The industry doesn't like it, of course, but it's a big improvement on the initial proposal of $40 billion starting in 2010.

Smith & Nephew (LSE: SN) has orthopaedics, endoscopy and wound management businesses. Just over 44% of its $3.8bn sales last year were derived from the US, where it enjoyed double-digit percentage growth in its range of hip and knee devices.

If the reforms had already applied, Smith & Nephew would have faced up to $37m in extra taxes last year. That can be measured against a pre-tax profit of $670m.

Like the big pharmas, Smith & Nephew has yet to make any official statement on how it views the new legislation.

Nurse! Nurse!
I spotted one UK company which did comment on Obama's reforms last week. AIM-listed Healthcare Locums (LSE: HLO), which announced full-year results on Tuesday, described the reforms as 'a huge and exciting opportunity' for the company.

Healthcare Locums has 12,500 international candidates on its database and anticipates the US will need up to 1.6m new nurses and other healthcare workers over the next five to ten years.

However, the company's share price plummeted on the release of its results. A surprise change in its accounting policies -- ironically reflecting the growing importance of the US market -- left profits below City expectations. On top of that, a sizeable contraction in the social workers division didn't compute with the company's year-end trading statement announcing 'very strong performances' across 'all' divisions.

Opportunities
US commentators have been suggesting that investors take a look at a number of healthcare sub-sectors in their domestic market, including healthcare insurance, pharmacy benefit management and health information technology, but are there any more UK firms set to benefit from Obama's reforms? If you've spotted a good one, tell us about it in the comments box below.