View from City Road: World will keep taking the tablets

The flurry of interest in drug shares yesterday was due to the approval of Tagamet, the ulcer treatment, for over-the-counter sales. The more drugs go off prescription, the larger the offset to any squeeze on margins from cost-conscious governments. It is likely, though, that worries about the impact of the Clinton healthcare reforms have anyway been overdone. The World Bank's world development report, which focuses on health this year, provides some support for the view that the industry's growth is unlikely to slow.

World spending on health totalled about dollars 1,700bn in 1990, or 8 per cent of global income. The share of national income going on health tends to rise as countries get richer, so that the health industry grows steadily faster than the economy as a whole. The potential market for drugs in rapidly growing Third World countries is enormous: China's spending of dollars 7 a year per head on drugs compares with Britain's dollars 97.

True, the World Bank shows that much of that spending - whether public or private - is inefficient. Glamour medicine still triumphs over more effective preventative measures. But the underlying demand for health care is still so strong, and is so far from the point of diminishing returns in Third World markets, that the industry's strengths should not be overlooked.