Healthcare Sector Overview

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Transcript Healthcare Sector Overview

Healthcare
Investment Opportunities
Daniel, Eric, Grace, Rebecca, Sunny, Xianming, Natnael, Ryan, Thomas, Zach, Betty, Ariana
Healthcare
Agenda
1 Government Policies
1.
a.
b.
Affordable Care Act
Government Spending
2.
2 Industry Activities
a.
b.
c.
d.
Consolidation
Re-domiciles
Niche Drugs
Recent M&As
3.
3 Investment Opportunities
4.
4 Sector Performance
1
Healthcare
Government Policies
Affordable Care Act
•
11M no longer uninsured (-25%),
expected to grow
•
Expected increase in revenue paid due
to decrease in uninsured
- 67%: newly insured with
Medicaid
•
Pressure for M&A:
- 33%: insured via state public
insurance exchanges
•
Tax penalties for citizens without
insurance
•
Insurance companies must pay
rebates to consumers if nonmedical spending is above 1520%
•
•
Implications
Exchanges and Medicaid
expansion take effect starting
2014
Life of Medicare trust fund
expanded from 2024 to 2026
Hospitals
•
Insurance
Companies
Pharmas
General
-
Diversify as ACA squeezes Medicare
reimbursements (outpatient services,
etc.)
-
Increase in scale lowers administrative
& other costs (IT)
Decreased profit margins from increased
number of enrollees
-
New enrollees utilize higher levels of
care
-
New industry taxes to pay for ACA
-
Rebates
•
Increased demand for prescription drugs
for newly insured
•
Innovate to economize on costs
1
Healthcare
Government Policies
Government Spending
 5.7% expected overall increase
from 2013 to 2023
- Retirement of baby boomers
 7% increase in Medicaid enrollment
to 6.1B people
 $11B reduction on Medicare
spending$14M reduction for
academic medical centers
 $1.54B reduction for National
Institute of Health (NIH)
 $209M cut in FDA budget
 $168M cut for mental health and
substance abuse services
Implications
• Lower federal deficits
• Increased hospitalization
• Reductions and delays in drug
approvals
2
Healthcare
Industry Activities – Consolidation
What is Consolidation?
• Mergers of hospitals/health care systems
• Acquisitions of physician group by a hospital
Why is it Important?
• Consolidation among hospitals + doctors ->
rising health care costs
• Payments to hospitals +3% due to
consolidation
What are the Incentives?
Current Consolidation
News
• Economies of scale
• Hospitals increase prices almost 50%
• ACA’s emphasis on care coordination >>
consolidation
• Anthem Blue Cross Vivity
2
Healthcare
Industry Activities – Re-domiciles
Tax Inversion
• Companies shift their
incorporation abroad to avoid
US tax rates
• Taking advantage of lower
foreign tax rates
• 9 out of 13 deals relating to tax
inversion are in health care
• US: 35%; Ireland: 12.5%
• Injected Value
• September 2014: U.S. Treasury
curtail tax breaks from
international deals
Related Deals
2010: Valeant’s
merge with Biovail
in Canada
(+700%)
2013: Endo buys
Paladin($1.6B) to
save >$50M/year
in tax
2014: Pfizer buys
AstraZeneca
($112.6B) to
reduce tax rate
from 28% to 22%
2014: Medtronic
buys Covidien
($42.9B) to move
tax base to Ireland
2
Healthcare
Industry Activities – Niche Drugs
The Orphan Drug Act of
1983 provides financial
incentive for investigating
rare disease treatments
Larger companies like Pfizer
have been acquiring these
startups to move into niche
markets
Blockbuster drugs are more
difficult to develop
Pharma startups can’t
compete on common diseases,
so easier to move to
“orphans”
Creating drugs for rare
diseases provides potential
for (temporary) small-market
monopolies
Trending towards
“nichebuster” rather than
“blockbuster” drugs
2
Healthcare
Industry Activities – Recent M&As
Drivers of M&As
•
•
•
•
•
ACA
Rising demand for
facility and
equipment
improvement
Increased need
for IT support /
capabilities
Increased
compliance costs
Pharmaceuticals’
reliance on M&As
to stay
competitive
Recent Deals
09/2014: Merck buys
Sigma Aldrich ($17B) to
reduce reliance on
blockbuster drugs and
consolidate supply chain
11/2014: Perrigo buys
Omega Pharma ($4.5B) to
work around regulatory
hurdles in Europe
11/2014: LabCorp buys
Covance ($6.1B) to increase
presence in research and
new technology / drugs
Ongoing: Actavis buys
Allergan (~$66B) to
prevent Allergan’s hostile
takeover by Valeant
3
Healthcare
Investment Opportunities
Life Sciences
Medical Technology
Services
3
Healthcare
ACADIA Pharmaceuticals (ACAD)
Company Overview
• Focused on development and
commercialization of small molecule
drugs dealing with neurological and
central nervous system disorders
• Market Cap: $2.78B
• Founded: 1993; HQ: San Diego, CA
LTM Performance
$40.00
Products
• Pimavanserin (aka Nuplazaid)
- Potentially first drug approved for
Parkinson’s disease psychosis (P3)
- Also applicable for Alzheimer’s disease
psychosis (P2)
• Clinical stage for chronic pain/glaucoma
Strengths
• Strong 3rd stage drug in the pipeline to
treat Parkinson’s related psychosis
$27.83
- If approved by FDA, drug would be
first in its kind
- Could reach market by Q2 2015
- Potential to be $5B/year product
- Could get acquired by bigger
pharmaceutical company
$30.00
$20.00
$10.00
$0.00
Note: Price as of 11/17/2014
3
Healthcare
Gilead (GILD)
Company Overview
Strengths
• Develops and commercializes
medicines for treatment of HIV, liver
diseases, oncology/inflammation, and
cardiovascular/respiratory conditions
• Market Cap: $153B
• Founded: 1987; HQ: Foster City, CA
• Working capital up from $1B to
$6.5B
• Large market (130M for HepC) –
still growing
- Sovaldi distribution pending in the
European Union, Japan and New
Zealand.
• Potential M&A with Achillion
LTM Performance
$120.00
$100.44
$100.00
$80.00
Products
• Treatment of liver diseases:
- Harvoni: FDA approved 10/2014
as 1-pill treatment for HepC
- Sovaldi: FDA approved in 2013
to treat HepC as component of
antiviral treatment regimen
$60.00
$40.00
$20.00
$0.00
Note: Price as of 11/17/2014
3
Healthcare
Verisante Technology (VRS)
Company Overview
Strengths
● 5th largest medical device company in
Canada
● Possesses exclusive rights to technology
developed by the BC Cancer Agency for
the early detection of cancer
● Market Cap: $10.79M
● Founded: 2006; HQ: Vancouver,
Canada
● Novel technology with continuous
revenue stream model
● Works closely with BC Cancer
Agency, hospitals, and
universities
● Operates by founding members
● Projected revenue for 2015 is
$15.14M
LTM Performance
$0.40
$0.35
$0.30
$0.25
$0.20
$0.15
$0.10
$0.05
$0.00
Products
$0.13
Note: Price as of 11/17/2014
● Verisante Aura - only one in
the market, continuous revenue
stream
● Verisante Core - early
diagnosis and treatment
3
Healthcare
Brookdale Senior Living (BKD)
Company Overview
•
Strengths
1,100+ independent or assisted living
centers, 46 states, 110,000+ senior
citizens
•
Management services for other
communities, therapy, home health, memory
care
•
Market cap: $6.1B
•
Founded: 1978; HQ: Brentwood, TN
•
LTM Performance
$40.00
$35.00
$30.00
$25.00
$20.00
$15.00
$10.00
$5.00
$0.00
-
3x larger than next largest competitor
-
Aims to be only national senior living
brand
•
Stands to benefit from aging baby boomers
(predicted to grow 3x faster than general
population)
•
Variety of services & centers: keep customers
as their needs change
Recent News
$33.82
Note: Price as of 11/17/2014
Largest diversified senior community
operator
•
07/2014: $2.8B merger with Emeritus Senior
Living to expand into nursing, dementia care,
reaching more geographical areas (largest
Services M&A in 2014 Q3)
•
09/2014: $1.2B joint venture with HCP real
estate investment trust to expand continuing
care retirement communities
3
4
Healthcare
Sector Performance – 1-year Benchmarks
Note: Index level as of 11/14/2014