The uncertain future of health care in America is prompting portfolio manager Jim O'Leary to look abroad for drug stocks.

"Foreign pharma is a wonderful place to be," says O'Leary, who oversees the Touchstone International Growth Fund ( TAIMX). "American drug companies have no idea what their reimbursements are going to be for 2009 and 2010 due to political uncertainties, but foreign companies already know what their reimbursements are going to be."

International drug stocks have been a boon to O'Leary's $20 million portfolio (see video). His fund is down 15% year-to-date, but that's 2.3 percentage points better than the MSCI EAFE benchmark. Over the past three years, the fund has fallen an average of 13.6% annually, 1.8 percentage points better than the MSCI EAFE.

A favorite stock is Danish drugmaker Novo Nordisk ( NVO), which specializes in diabetes drugs. It makes up 3% of assets in the fund. The company's shares have risen a cumulative 49% over the past three years.

"Their first big product relates to Type 1 diabetes and that's growing very quickly in the emerging markets," O'Leary says. "The second big drug deals with Type 2 diabetes, and that's a problem that has risen to epidemic proportions in the developed world."

The developed world is aging as people live longer, and that means a greater need for eye-care products, O'Leary says. As a result, he is bullish on Swiss drugmaker Alcon ( ACL), which is partially owned by Nestle ( NSRGY.PK). Alcon has risen 7.3% during the past three months, keeping a one-year decline to 34%.

"Nestle has been shopping their portion around which may be a nice benefit for the shareholders," he says. "But the bull case is quite clear: Alcon invests more in eye research than any other eye-research company, and these are all very high-margin products."

O'Leary doesn't expect a wave of mergers in Europe, unlike in the U.S. Anti-trust regulations are stricter in Europe, so that makes it harder to complete mega-deals like the ones that brought together Merck ( MRK) and Schering Plough ( SGP)" EXCHANGE="NYSE" PRIMARY="NO"/>, as well as Pfizer ( PFE) and Wyeth ( WYE).

American drugmakers are combining to secure their pipelines as more blockbuster drugs go off-patent. O'Leary likes Israel-based Teva Pharmaceuticals ( TEVA) as a way to take advantage of the trend toward generic drugs. The company's stock has increased 8.4% over three months.

"Whenever you combine a large and talented sales force with a dominant and quality product, you will dominate the marketplace," O'Leary says. "And we think that is going to continue."

Before joining TheStreet.com, Gregg Greenberg was a writer and segment producer for CNBC's Closing Bell. He previously worked at FleetBoston and Lehman Brothers in their Private Client Services divisions, covering high net-worth individuals and midsize hedge funds. Greenberg attended New York University's School of Business and Economic Reporting. He also has an M.B.A. from Cornell University's Johnson School of Business, and a B.A. in history from Amherst College.

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