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Guest post courtesy of Kemp Dolliver, CFA, Chief Investment Officer for Cherrystone Hill Capital Management LLC.

The CDC’s recent disclosure of the death of a woman in Nevada has renewed focus on the public health risk of antibiotic resistance. What is noteworthy here is that the woman had Klebsiella pneumoniae that was resistant to all 26 antimicrobial drugs available in the United States. In addition, the bacterium had the gene New Delhi metallo-beta-lactamase (NDM) that she had contracted in India, most likely during her multiple hospital stays over the prior two years. Antibiotic resistance is a global concern, and there is particular worry that over-use of antibiotics in developing countries could lead to the emergence of a “superbug” that causes a severe epidemic.

China and India are Focal Points

China and India have received the most attention in this context because of the sizes of their populations and over-use of antibiotics. A 2013 study by the Guangzhou Institute of Geochemistry found that China is the world’s largest manufacturer and consumer of antibiotics with an estimated 162,000 tons (~50% world’s total) consumed in 2013. China’s government has battled this issue for many years. In 2011, the Ministry of Health enacted a regulation to limit the number of antibiotics available in hospitals’ pharmacies. Over the last three years, several provinces have banned state-owned hospitals from providing outpatient IV services. India has not stood still either. The government banned the direct sale of antibiotics to the public in March 2014 and initiated the “Clean India” campaign later that year to eradicate open defecation by October 2019.

Other EMs Pose Risks Too

A World Health Organization study published in November 2015 surveyed individuals across a broad range of EMs found that the risks of overuse aren’t limited to India and China as excerpts from the report show:

“Respondents were asked which of a list of medical conditions can be treated with antibiotics. The list contained conditions that can be treated with antibiotics (such as bladder/urinary tract infection (UTI), skin/wound infection, and gonorrhoea) as well as those that cannot. The majority of respondents (72%) correctly identity both bladder/UTI and skin/wound infections as conditions which can be treated with antibiotics. In contrast, only 51% of respondents correctly identify gonorrhoea as a condition which is treatable by antibiotics. Large proportions of respondents mistakenly think that conditions which are usually viral, and therefore do not respond to antibiotics, can be treated with these medicines, notably sore throats (70%) and colds and flu (64%).”

“The condition which is most often incorrectly identified as being treatable with antibiotics is colds and flu. In almost all countries surveyed, the majority of respondents believe that colds and flu can be treated with antibiotics. Here too there are some significant differences in findings from different countries. Findings from Nigeria show the highest proportion of correct responses, with more respondents thinking that antibiotics do not work for colds and flu (47%) than those thinking they do (44%). Respondents in Sudan (80%), Egypt (76%) and India (75%) are most likely to state that antibiotics can treat colds and flu.”

Are There Investment Implications Here?

Absolutely. Several years ago a colleague suggested “taking a look” at Hong Kong-listed United Laboratories (3933 HK), a leading manufacturer of antibiotics in China, because it was “cheap” and growing rapidly at the time (2012). I looked at the results, checked the aforementioned regulations issued in 2011, and thought “looks bad” even though the stock had declined significantly. That said, other Chinese companies such as SSY Group (2005 HK), China Resources Double-Crane Pharmaceutical (600062 CH), China Resources Pharmaceutical (3320 HK), and Sichuan Kelun Pharmaceutical (002422 CH) face varying degrees of headwinds here. Keep in mind that this list is neither exhaustive nor a recommendation to do anything.

Changing ingrained habits is difficult, so consumption of antibiotics is unlikely to decrease sharply overnight. There will be ongoing pressure for more appropriate use.  It beats the alternative………………………….  


About the Author

Kemp Dolliver, CFA, is Chief Investment Officer of Cherrystone Hill Capital Management LLC. He has over 25 years’ experience investing in healthcare in buy-side and sell-side roles in both the US and Asia. Mr. Dolliver was Head of Healthcare Research – Asia and Managing Director of Religare Capital Markets (Singapore) Pte Ltd prior to forming Cherrystone Hill. He previously worked for Cowen and Company, Avondale Partners LLC, NationsBank (now Bank of America), Aetna, and Dean Witter Reynolds (now Morgan Stanley). Mr. Dolliver also publishes the Developing World Healthcare Blog to discuss trends and developments in this sector.




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