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IMS Health Writes A New Script

With $137 billion worth of brand name drugs going generic over the next several years, the recession and the looming threat of healthcare reform a lot of people have been running scared about what it all means for pharma. So, surprise, surprise! This morning IMS Health, which closely monitors the industry, came out with its annual forecastand it now says the American drug market is going to grow this year instead of shrink. And not at a bad clip either. RX also raised its U.S. growth rate for next year. As I write this, all of the big pharma stocks are trading higher.

But shares of McKesson Corporation , which have been on an absolute tear over the last several months, are hitting another new intra-day high today. Lazard Capital Markets' analyst Tom Gallucci raised his price target on the drug distribution company's stock by 10 bucks to $68 specifically because of the IMS report. "Stronger overall market growth is positive and offers a more robust macro backdrop for key services companies in the drug channel," Gallucci wrote. He also bumped up his target by $3 on competitor AmerisourceBergen .

To be sure, the IMS forecast isn't all rosy. "Market growth is expected to remain at historically low levels....The economic climate will continue to be a dampening influence in most mature markets, particularly in those countries with rising budget deficits and publicly funded healthcare systems," the report says. So, where to look for strong growth? China. IMS predicts, "China's pharmaceutical market is expected to continue to grow at a 20+ percent pace annually, and contribute 21 percent of of overall global growth through 2013." Wow. More than one-fifth of the drug industry's growth over the next several years will come from one ginormous country with a burgeoning middle class that presumably will be buying more pills.

The major pharmaceutical companies these days love to talk about how they're busy increasing their footprint in China. I'd bet each one would tell you they've got the biggest head start or the best master plan to capitalize on that market. Zhu ni hao yun. (Thanks Melissa Lee.)

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