Healthcare - Atkins Investment Group

croatiandestructiveBiotechnology

Dec 9, 2012 (4 years and 4 months ago)

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Healthcare

Nick Castaldi

Chris Doyle

Brian Lowell


Biotechnology


The Biotechnology Industry in the Health Care Sector includes companies primarily engaged in the research, development, manuf
act
uring
and/or marketing of products based on genetic analysis and genetic engineering (including companies specializing in protein
-
base
d
therapeutics to treat human diseases).


Healthcare Equipment & Supplies


The Health Care Equipment and Supplies Industry in the Health Care Sector includes manufacturers of health care equipment, de
vic
es,
supplies, and medical products not classified elsewhere (including medical instruments, drug delivery systems, cardiovascular

an
d
orthopedic devices, diagnostic equipment, eye care products, hospital supplies, and safety needle and syringe devices).


Healthcare Providers & Services

(ESRX)


The Health Care Provider and Services Industry in the Health Care Sector includes distributors and wholesalers of healthcare
pro
ducts not
classified elsewhere, providers of Health Care Services, and owners and operators of Health Care Facilities and Managed Healt
h C
are.


Healthcare Technology (MDRX)



The Health Care Technology Industry in the Health Care Sector includes companies providing information technology services pr
ima
rily
to health care providers. Includes companies providing application, systems and/or data processing software, internet
-
based tool
s, and IT
consulting services to doctors, hospitals or businesses operating primarily in the Health Care Sector.


Life Sciences Tools & Services


The Life Sciences Tools and Services Industry in the Health Care Sector includes companies involved in drug discovery, develo
pme
nt, and
production continuum by providing analytical tools, instruments, consumables and supplies, clinical trial services, and contr
act

research
services (including firms primarily servicing the pharmaceutical and biotechnology industries).


Pharmaceuticals

(Teva)


The Pharmaceuticals Industry in the Health Care Sector includes companies engaged in the research, development, or production

of

pharmaceuticals (including veterinary drugs).



Subsectors

Recommendation


Hold MDRX



Discuss TEVA



Buy ESRX

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Average Life Expectancy vs. Per Capita HCE

Average Life Expectancy
Per Capita Healthcare Expense
Meaningful Use Act


Offers more than $30 billion in ARRA incentives
over the next two years (by Sept. 30, 2012)


Health entities must show meaningful use of EHRs


Requires anyone covered by the HIPPA to adhere to
new regulation by
2013


EHR adoption is expected to grow from 12% to 90%
by 2019 according to the CBO


Why Healthcare IT


HIT Companies will benefit from
ObamaCare


Health Centers are incentivized to improve IT
systems and penalized if they don’t by 2015.


Increased demand



Steady growth over the next few years

Allscripts

Purchase Price: $ (3
-
1
-
11)

Return:

Market Value: $

(MDRX)

What is
A
llscripts?

Allscripts Healthcare Solutions, Inc.
provides
information technology, financial support, and
connectivity to hospitals, physicians, and post
-
acute
facilities. (EHR)


Headquarters are located in Chicago.


Founded in 1986

Recent News

Allscripts
Healthcare and Blue Cross and Blue Shield of
North
Carolina.


announced
new program to implement electronic health
records (EHR)
with more
than 750 North Carolina
physicians.

Two Leading Health
Systems in Michigan and
California
Select Allscripts to Connect and
Coordinate
Care in Their
Communities.


provide their physicians and other caregivers with shared access to a single, unified
patient record.

MDRX

Q2

(Thousands)

%∆ (QoQ)

Revenue

$356,831

6.4%

Net

Income

$15,876

26%

EPS

.08

14%

Beta

1.42


Financials


52 Week Range:

13.85
-

$18.66
-
23.13

Advantages and
Drawbacks


Increased Healthcare IT
Spending



Fulfilling implementation
strategies.



Market leader



Constantly beating
expectations




Economic slowdown


Not a necessity



Double
-
dip risk looming



Increased competition



Fulfilling
Implementation

Market Leader

Data Flow
P
er
Patient

Earnings Overview


Steady Earnings Growth



Constantly beatings analyst
consensus projections for earnings.

Competitor Analysis

Valuation Statistics



Share

Price



Market

Cap



Enterprise

Value

Enterprise Value /

Revenue

Enterprise Value /

EBITDA





P / E Multiple



Company Name

2010

2011E

2010

2011E

2010

2011E

Accretive Health

$22.37

$2,181.0

$2,031.0

3.0x

2.0x

57.9x

20.1x

131.6x

38.6x

Athena Health

$60.81

$2,127.0

$2,023.0

7.2x

5.5x

43.0x

26.6x

110.6x

66.8x

Nuance Communications

$22.38

$6,839.0

$7,219.0

5.7x

4.7x

27.2x

12.1x

159.9x

14.5x

Allscripts Healthcare

$18.66

$3,507.0

$3,815.0

3.1x

2.5x

18.2x

9.5x

186.6x

19.0x

DCF and Targets

12 Month Target:

$21
-
$24.21
-
$27

Teva

Purchase Price: $48.84 (2
-
26
-
08)

Return: ****%

Market Value: $****** (**%)

(TEVA)

Introduction to
TEVA


No.

1
generic pharmaceutical company


Top
15

global pharmaceutical company


Presence in
60

countries and sales in
120

countries


40,000 employees




Sales

50%

35%

15%

Sales Breakdown by
Geography

North
America
Europe
Latin
America and
Asia
72%

12%

7%

5%

3%

1%


Breakdown by Product


Generics`
Innovative
Respiratory
API
Women's
Biosimilars
Financials

52 Week Range:

35.00
-
$39.03
-
57.08

TEVA

Q2

(Millions)

%∆ (QoQ)

Revenue

$4,212

3%

Net

Income

$576

24%

EPS

.64

24%

Beta

.26

TEVA in the News


Recent acquisitions of
Cephalon

and Taiyo


Significant Reduced Loss of Brain Volume in Multiple
Sclerosis Patients Treated with
Copaxone
®


Pfizer Inc. (PFE) Settles with

TEVA over Lipitor in
UK; Deal Keeps Generic Lipitor at Bay to May 2012




Advantages


Vertical Integration


Strong Acquisition History


Massive Economies of Scale


Over a quarter of a trillion dollars
of U.S branded opportunity
awaiting generics


Given the international focus on
lowering medical costs, the
demand for generics should
continue to grow.


Strong growth potential in Europe
and Asia



Drawbacks


After 2013, the market values of
patent expirations vastly decline


Unknown growth opportunities in
undeveloped emerging markets


Potential government regulation


Competitor Analysis

Valuation Statistics



Share

Price



Market

Cap



Enterprise

Value

Enterprise Value /

Revenue

Enterprise Value /

EBITDA





P / E Multiple



Company Name

2010

2011E

2010

2011E

2010

2011E

Watson

Pharmaceuticals

$67.07

$8,996.0

$10,037.0

2.6x

1.9x

13.4x

7.6x

59.6x

12.3x

Bristol
-
Myers Squibb

$32.82

$55,979.0

$53,626.0

2.6x

2.6x

7.3x

8.0x

17.0x

14.4x

Eli Lilly & Co

$37.61

$43,540.0

$43,917.0

1.8x

1.9x

5.4x

6.2x

8.8x

10.4x

Teva

Pharmaceuticals

$39.03

$34,775.0

$40,059.0

2.4x

1.9x

7.7x

5.6x

11.2x

7.0x

DCF and Targets

12 Month Target:

$42
-
$58.04
-
$67

Express Scripts

Price:

(ESRX)

What is Express
Scripts?



Express Scripts is one of the largest U.S.
pharmacy benefits managers (PBMs). Its PBM services
(97% of 2010 revenue) include retail network
pharmacy management and home delivery services.




Clients include health insurers, third
-
party
administrators, employers, union
-
sponsored benefit
plans, government health programs, office
-
based
oncologists, renal dialysis clinics, ambulatory surgery
centers, primary care physicians and others.

Why Express scripts?


Industry leader


Strong financials


Solid business foundation


Successful strategic acquisitions


Attractive near and long term growth prospect


Effective management


Financials

52 Week Range:


34.47
-
$40.42
-
60.89

ESRX

Q2

(Millions)

%∆ (QoQ)

Revenue

$11,361

2%

Net

Income

$334

2%

EPS

.66

8%

Beta

1.00

Acquisitions


Intent
-
behavior

Risks?


Retailer fall
-
out (Walgreens)


Stiff competition


Room to grow organically?


Slowdown of domestic growth

Competitor Analysis

Valuation Statistics



Share

Price



Market

Cap



Enterprise

Value

Enterprise

Value /

Revenue

Enterprise Value /

EBITDA





P / E Multiple



Company Name

2010

2011E

2010

2011E

2010

2011E

CVS Caremark

$34.67

$
46,625

$55,508.0

0.5x

0.5x

7.3x

6.8x

14.0x

11.7x

Medco Health
Solutions

$49.20

$18,968.0

$23,904.0

0.4x

0.4x

7.9x

7.3x

14.5x

11.4x

Aetna Inc

$37.47

$13,972.0

$17,626.0

0.5x

0.5x

5.0x

5.6x

8.2x

8.2x

Express Scripts

$40.48

$19,762.0

$23,560.0

0.5x

0.5x

9.4x

8.2x

16.5x

12.3x

DCF and Targets

12 Month Target:

$42
-
$57.40
-
$66

Q&A

Option 1 : Hold MDRX, Hold TEVA (Increase Weight)


Option 2 : Hold MDRX, Sell TEVA, Buy ESRX


Option 3 : Hold MDRX, Hold TEVA, Buy ESRX